Category: Regulatory Developments

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Mandatory Cardiac Episode Payment Program: CMS Proposes Cancellation

Also Changes Required Participation in the CJR Model

 

On August 15, 2017, the Centers for Medicare and Medicaid Services (CMS) issued a proposed rule (Proposed Rule) that, if finalized, would (1) reduce the number of Metropolitan Statistical Areas (MSAs) in which there is mandatory participation in the Comprehensive Care Joint Replacement model (CJR) from 67 to 34, and (2) cancel the mandatory Episode Payment Models and Cardiac Rehabilitation incentive payment program.  The action reflects a change in course for CMS, de-emphasizing and significantly reducing mandatory participation in Alternative Payment Programs.

Reduced Mandatory Participation in CJR Model

The CJR model originally became effective on April 1, 2016 and mandated that hospitals in 67 specified MSAs must participate in an episode-based payment program for hip and knee joint replacements.  The Proposed Rule, anticipated to be effective as of February 1, 2018, reduces the mandatory participation in the CJR essentially by one half to 34 MSAs (see Table 1 below taken from the proposed rule for the remaining MSAs).

The remaining MSAs have the highest average wage-adjusted historic episode payments, that is, the counties with the highest average expense cost for the episodes involved. Under the Proposed Rule, hospitals in the other 33 MSAs would no longer be required to participate in the CJR model, but they may elect voluntarily to participate in that program by submitting a participation election letter to CMS by January 31, 2018. In addition, within the 34 MSAs for which participation is mandatory, identified low volume or rural hospitals also would no longer be required to participate, but they may elect voluntarily to do so.

According to CMS, the remaining 34 MSAs for which participation is mandatory will provide sufficient information to evaluate the effects of the CJR model across a broad range of providers.  The higher costs in these MSAs also allows the participating hospitals a greater opportunity for showing improvement through participation in the CJR model.

Cancellation of EPM and Cardiac Rehabilitation Incentive Program

The Proposed Rule also seeks to cancel the Episode Payment Model (EPM), that would have expanded mandatory participation in an episode-based payment to hospitals in a number of MSAs for acute myocardial infarctions, coronary artery bypass grafts and surgical hip/femur fracture treatment, and a Cardiac Rehabilitation Incentive payment model that was to be implemented simultaneously with the EPM. Regulations for both models were originally issued on July 25, 2016 and are described here.

What Does All This Mean?

The Proposed Rule shows CMS does not favor mandatory participation in Alternative Payment Programs. As CMS states in the commentary to the Proposed Rule “requiring hospitals to participate in episode payment models at this time is not in the best interests of the agency or affected providers.”  CMS further explained that large mandatory episode-based payment models “may impede [the] ability to engage providers, such as hospitals, in future voluntary efforts.”

While CMS and the Center for Medicare and Medicaid Innovation have introduced many Alternative Payment Programs which move reimbursement to providers away from fee-for-service reimbursement toward reimbursement models focused on efficiency, delivery of value, and quality care, some have thought the pace of the transition to value-based care has been slower than anticipated.  Since Alternative Payment Models are viewed as an effective way to restrain health care cost increases, some view that such slower pace will mean providers will not be required to take steps necessary to be more efficient and reduce costs.  Cancellation of and reductions in mandatory programs will allow providers to avoid, at least for the near term, preparing themselves for such models given the lack of any requirement to do so.

At the same time, voluntary participation ensures participants in such models are committed to and engaged in the value-based models. The continued evaluation of such models with voluntary participants also helps ensure that access to care, quality, and favorable outcomes are not adversely affected by mandatory participation of providers not ready for such programs.

Commercial payor arrangements and market incentives aimed at helping providers to become more efficient are not directly affected by the Proposed Rule. Their presence may still encourage providers to voluntarily participate in Alternative Payment Models.

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New Jersey’s Telemedicine Law: What Providers Need to Know

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New Jersey has a new telemedicine law, recently signed by Governor Chris Christie. The law cements the validity of telehealth services in the Garden State, establishes telemedicine practice standards, and imposes telehealth coverage requirements for New Jersey Medicaid, Medicaid managed care, commercial health plans, and other State-funded health insurance. After a year of debate in the New Jersey Legislature, the bill (SB 291 now P.L.2017, c.117) unanimously passed both the House and Senate before going to the Governor’s Office. The law is effective July 21, 2017.

The new law is quite lengthy, but we have summarized and explained the essential provisions below:

Key Definitions

  • Telemedicine is broadly defined as the delivery of a health care service using electronic communications, information technology, or other electronic or technological means to bridge the gap between a health care provider who is located at a distant site and a patient who is located at an originating site. The term does not include “the use, in isolation, of audio-only telephone conversation, electronic mail, instant messaging, phone text, or facsimile transmission.

  • Telehealth is defined as the use of information and communications technologies, including telephones, remote patient monitoring devices, or other electronic means, to support clinical health care, provider consultation, patient and professional health-related education, public health, health administration, and other services.
  • Asynchronous Store-and-Forward is defined as the acquisition and transmission of images, diagnostics, data, and medical information either to, or from, an originating site or to, or from, the health care provider at a distant site, which allows for the patient to be evaluated without being physically present.
  • Health Care Provider is broadly defined as an individual who provides a health care service to a patient, which includes, but is not limited to, a licensed physician, nurse, nurse practitioner, psychologist, psychiatrist, psychoanalyst, clinical social worker, physician assistant, professional counselor, respiratory therapist, speech pathologist, audiologist, optometrist, or any other health care professional acting within the scope of a valid license or certification issued pursuant to Title 45 of the New Jersey Statutes.

Telemedicine Communication Modalities

  • The law also states that telemedicine services must be provided “using interactive, real-time, two-way communication technologies” (a requirement that interestingly does not appear to extend to “telehealth services” under the statute itself). Synchronous audio-video is not mandated except for Schedule II prescribing.
  • Interactive Audio with Store-and-Forward. A provider engaging in telemedicine or telehealth may use asynchronous store-and-forward technology to allow for the electronic transmission of images, diagnostics, data, and medical information; except that the provider may use interactive, real-time, two-way audio in combination with asynchronous store-and-forward technology, without video capabilities, if, after accessing and reviewing the patient’s medical records, the provider determines that the provider is able to meet the same standard of care as if the health care services were being provided in person.
  • Audio-Only or Text-Based Communications. The law excludes from the definition of telemedicine consultations provided by “the use, in isolation, of audio-only telephone conversation, electronic mail, instant messaging, phone text, or facsimile transmission.”

Telemedicine Practice Standards

  • Provider-Patient Relationship. A valid provider-patient relationship may be established via telemedicine or telehealth without an in-person exam. Moreover, New Jersey licensing boards are prohibited from passing regulations that would require an in-person exam as a prerequisite to delivering telemedicine or telehealth services. A valid provider-patient relationship must include, at a minimum, the following:
    • Properly identifying the patient using, at a minimum, the patient’s name, date of birth, phone number, and address. The provider may additionally use the patient’s assigned identification number, social security number, photo, health insurance policy number, or other appropriate patient identifier associated directly with the patient.
    • Disclosing and validating the provider’s identity and credentials, such as the provider’s license, title, and, if applicable, specialty and board certifications.
    • For an initial consult with a new patient, the provider must review the patient’s medical history and any available medical records before initiating the telemedicine consult. (For telehealth consults conducted in connection with a pre-existing provider-patient relationship, the provider may review the information with the patient contemporaneously during the consult.)
    • The provider must determine whether or not he/she will be able to meet the standard of care. This determination must be done prior to each unique patient consult.
  • A health care provider delivering services via telemedicine or telehealth must adhere to the following practice standards.
    • The provider’s identity, professional credentials, and contact must be made available to the patient during and after the provision of services. The contact information must enable the patient to contact the provider (or a substitute provider authorized to act on behalf of the provider who provided services) for at least 72 hours following the provision of services.
    • The provider must review the patient’s medical history and any available medical records.
    • After the consult, the patient’s medical information must be made available to the patient upon his/her request. If the patient consents/requests, the information must be forwarded directly to the patient’s primary care provider or health care provider(s) of record.
    • If a patient has no health care provider of record, the telemedicine or telehealth provider is allowed to advise the patient to contact a primary care provider, and, upon request by the patient, may assist the patient with locating a primary care provider or other in-person medical assistance that, to the extent possible, is located within reasonable proximity to the patient.
    • The telemedicine or telehealth provider must refer the patient to appropriate follow up care where necessary, including making appropriate referrals for emergency or complimentary care, if needed.
  • Standard of Care. Diagnosis, treatment, and consultation recommendations, including discussions regarding the risk and benefits of the patient’s treatment options, made via telemedicine or telehealth, including the issuance of a prescription based on a telemedicine or telehealth consult, are held to the same standard of care or practice standards as are applicable to in-person settings. If telemedicine or telehealth services are not consistent with this standard of care, the provider must direct the patient to seek in-person care.
  • Telemedicine Prescribing. A provider may prescribe medications via telemedicine only after establishing a valid provider-patient relationship.
    • Unless the provider has established a valid provider-patient relationship, a provider shall not issue a prescription to a patient based solely on the responses provided in an online questionnaire.
    • With regard to prescribing controlled substances via telemedicine, the law does not prohibit the activity except for Schedule II drugs. A provider may prescribe Schedule II controlled substances via telemedicine only after conducting an initial in-person examination of the patient. Moreover, subsequent in-person exams are required every three months for the duration of time that the patient is being prescribed the Schedule II controlled dangerous substance. Note: despite the New Jersey law, providers must still comply with the prescribing requirements under the federal Ryan Haight Act.
    • The New Jersey in-person exam requirement does not apply to prescriptions for Schedule II controlled stimulant drugs for use by a patient under the age of 18 if: 1) the provider uses interactive, real-time, two-way audio and video technologies; and 2) has obtained written consent from the minor patient’s parent or guardian to waive the in-person exam.
  • Patient Consent. The law does not require patient informed consent to telehealth services (although New Jersey Medicaid requires it for certain specialties). However, to the extent the provider must obtain patient consent for certain activities (e.g., recommending a primary care referral, clinical procedures), the patient’s consent may be oral, written, or digital in nature, provided that the chosen method of consent is deemed appropriate under the standard of care.
  • Originating site. There are no geographic or facility restrictions on originating sites, which are simply defined as “a site at which a patient is located at the time that health care services are provided to the patient by means of telemedicine or telehealth.”
  • Patient-Site Telepresenter. There is no requirement to use a patient-site telepresenter, unless otherwise needed by medical standard of care expectations.
  • Medical Records; HIPAA. Providers must maintain a complete record of the patient’s care and comply with all applicable State and federal statutes and regulations for recordkeeping, confidentiality, and disclosure of the patient’s medical record.

Other unique and notable highlights of the New Jersey law include:

  • Business Registration for Telemedicine or Telehealth Organizations. The law requires each telemedicine or telehealth organization operating in New Jersey to annually register with the Department of Health and submit annual reports on activity and encounter data. The content of the reports will be specified further in forthcoming regulations, but we know the reports will include, at least, for each consult: the patient’s race and ethnicity; the diagnostic codes; the evaluation management codes; and the source of payment for the consult. The Department of Health will compile the information into a statewide database. A “Telemedicine or telehealth organization” is a corporation, sole proprietorship, partnership, or limited liability company that is organized for the primary purpose of administering services in the furtherance of telemedicine or telehealth.
  • Telemedicine and Telehealth Review Commission. The law creates a seven-member New Jersey Telemedicine and Telehealth Review Commission. The Commission will review the information reported by telemedicine and telehealth organizations and make recommendations for policy and law changes to promote and improve the quality, efficiency, and effectiveness of telemedicine and telehealth services in New Jersey.
  • Exceptions to Provider-Patient Relationship. Telemedicine or telehealth may be practiced without a proper provider-patient relationship in the following circumstances:
    • During informal consultations performed by a provider outside the context of a contractual relationship, or on an irregular or infrequent basis, without the expectation or exchange of direct or indirect compensation.
    • During episodic consultations by a medical specialist located in another jurisdiction who provides consultation services, upon request, to a properly licensed or certified health care provider in New Jersey.
    • When a provider furnishes medical assistance in response to an emergency or disaster, provided that there is no charge for the medical assistance.
    • When a substitute provider, who is acting on behalf of an absent provider in the same specialty, provides health care services on an on-call or cross-coverage basis, provided that the absent provider has designated the substitute provider as an on-call provider or cross-coverage service provider.
  • Mental health screeners, screening services, and screening psychiatrists subject to the provisions of P.L.1987, c.116 (C.30:4-27.1 et seq.) are not required to obtain a separate authorization in order to engage in telemedicine or telehealth for mental health screening purposes, and are not required to request and obtain a waiver from existing regulations prior to engaging in telemedicine or telehealth.

New Jersey Telemedicine and Telehealth Insurance Coverage

The law establishes fairly broad coverage of telemedicine and telehealth services, both under New Jersey Medicaid and commercial health insurance plans. However, the law does not explicitly impose a payment parity requirement (i.e., mandating that reimbursement for telemedicine and telehealth services be equal to reimbursement rates for identical in-person services). Instead the law sets the in-person reimbursement rate as the maximum ceiling for telemedicine and telehealth reimbursement rates.

  • With regard to Medicaid and Medicaid managed care, the law states that the State Medicaid Program and NJ FamilyCare Program “shall provide coverage and payment for health care services delivered to a benefits recipient through telemedicine or telehealth, on the same basis as, and at a provider reimbursement rate that does not exceed the provider reimbursement rate that is applicable, when the services are delivered through in-person contact and consultation in New Jersey.”
    • Reimbursement payments may be provided either to the individual practitioner who delivered the reimbursable services, or to the agency, facility, or organization that employs the individual practitioner who delivered the reimbursable services, as appropriate.
    • The programs may limit coverage to services that are delivered by participating health care providers, but may not charge any deductible, copayment, or coinsurance for a health care service, delivered through telemedicine or telehealth, in an amount that exceeds the deductible, copayment, or coinsurance amount that is applicable to an in-person consultation.
  • With regard to commercial health insurance plans, the law states that “a carrier that offers a health benefits plan in [New Jersey] shall provide coverage and payment for health care services delivered to a covered person through telemedicine or telehealth, on the same basis as, and at a provider reimbursement rate that does not exceed the provider reimbursement rate that is applicable, when the services are delivered through in-person contact and consultation in New Jersey.”
    • Reimbursement payments may be provided either to the individual practitioner who delivered the reimbursable services, or to the agency, facility, or organization that employs the individual practitioner who delivered the reimbursable services, as appropriate.
    • A carrier may limit coverage to services that are delivered by health care providers in the health benefits plan’s network, but may not charge any deductible, copayment, or coinsurance for a health care service, delivered through telemedicine or telehealth, in an amount that exceeds the deductible, copayment, or coinsurance amount that is applicable to an in-person consultation.
  • The law establishes similar telemedicine and telehealth coverage requirements for contracts purchased through the New Jersey State Health Benefits Commission and the New Jersey School Employees’ Health Benefits Commission.

Passage of this new legislation is welcome news for telemedicine companies and health care providers looking to offer telemedicine services in New Jersey. We will continue to monitor New Jersey for any rule changes that affect or improve telemedicine opportunities in the state.

For more information on telemedicine, telehealth, virtual care, and other health innovations, including the team, publications, and other materials, visit Foley’s Telemedicine and Virtual Care practice.

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Opioid Crisis Initiating New State Gift Ban Laws

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The Maine legislature passed with broad bipartisan approval L.D. 911, An Act to Prohibit Certain Gifts to Health Care Practitioners. The legislation prohibits gifts to practitioners who are licensed to prescribe and administer drugs by manufacturers, wholesalers, or agents of manufacturers or wholesalers of prescription drugs.

What’s Excluded?

  • Free samples of prescription drugs for patients
  • Items less than $50 over a calendar year
  • Payments to sponsors of educational programs
  • Honoraria for educational conferences
  • Compensation for research
  • Publications or educational materials
  • Salaries to employees

At the Heart of the Bill is the State’s Opioid Crisis

While similar in substance to what already exists in Massachusetts, Vermont, and other states as a law designed to curtail conflicts of interest in physician prescribing practices, the purported impetus here is the state’s opioid crisis. Representative Scott Hamann, the sponsor for the bill, said that the goal is to ensure doctors do not have conflicts of interest when prescribing drugs, especially opioids. According to Hamann’s testimony before the legislature, “People are dying, and the addiction often starts in the doctor’s offices.” The bill intends to curb any influence on the prescribing of opioids given the perspective that there is a correlation between payments and prescribing behavior. Maine has seen a forty percent increase in drug overdose deaths in the last year, and spending on physicians nearly doubled from 2014 to 2015.

The “gift ban” law is now awaiting the Maine Governor’s signature. It will be interesting to see if other states impacted heavily by heroin and opioid abuse will follow suit with increased surveillance or banning of industry gifts to physicians.

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Seven Key Questions in Understanding the Current Regulatory State of HCT/Ps

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Despite regulations, litigation, and significant draft guidance, the future of regulation of HCT/Ps remains up in the air.  Learn what you need to know quickly with these seven questions and answers.

What do I Need to Know?

1. What is an HTC/P?

Under the Public Health Service Act (PHSA) and implementing regulations, the FDA regulates human cell and tissue products (HCT/Ps), which refers to articles “containing or consisting of human cells or tissues that are intended for implantation, transplantation, infusion, or transfer into a human recipient.” See 21 CFR Part 1271.3.  The HCT/P regulations require manufacturers to register their products, create donor eligibility criteria, and establish procedures, such as current good tissue practices (cGTPs), to prevent the spread of communicable diseases. Certain tissue products and procedures are explicitly exempt from regulation because they constitute a low risk of disease transmission. They are also, by definition, not considered HCT/Ps.

2. Is FDA Approval Required?

Under the HCT/P framework at 21 CFR Section 1271, the FDA classifies different types of human cells, tissues, and cellular and tissue-based products into categories for regulation based on the public health risks they pose: (1) products not subject to HCT/P regulations, (2) HCT/Ps regulated solely under Section 361 of the PHSA – and which do not required approval, and (3) products posing the most risk that are to be regulated as a biological product and require approval under Section 351 as a biological license application (BLA).

The regulations cover products under both Sections 361 and 351 of the PHSA.  Procedures involving HCT/Ps qualifying for regulation under Section 361 are subject to minimal oversight and are regulated solely to prevent the spread of communicable diseases. To qualify, a product must (1) be minimally manipulated; (2) be intended for homologous use only; and (3) not involve cells and tissues combined with other articles (subject to certain exceptions).  In addition, a product must either not have a systemic effect “or depend on metabolic activity of living cells for its primary function,” or, if it does have an effect or is dependent on the metabolic activities of cells, the product must be for “(a) autologous use, (b) [allogenic] use in at most a second degree blood relative, or (c) reproductive use.” Historically, FDA has construed these terms narrowly, and has brought enforcement action and litigation when challenged.

3. What Constitutes Minimal Manipulation?

Minimal manipulation is defined in the regulations as:

  1. For structural tissue, processing that does not alter the original relevant characteristics of the tissue relating to the tissue’s utility for reconstruction, repair, or replacement; and
  2. For cells or nonstructural tissues, processing that does not alter the relevant biological characteristics of cells or tissues.1

In December 2014, the FDA issued a Draft Guidance entitled “Minimal Manipulation of Human, Cells, Tissues, and Cellular and Tissue Based Products.” The Draft Guidance distinguishes  between structural tissue and cells or nonstructural tissue. The Draft Guidance explains this distinction, stating that “tissues that physically support or serve as a barrier or conduit, or connect, cover, or cushion are generally considered structural tissues.” On the other hand, cells or nonstructural tissues “are generally those that serve predominantly metabolic or other biochemical roles in the body such as hematopoietic, immune, and endocrine functions.”

The Draft Guidance provides a list of structural tissue examples, including “bone, skin, amniotic membrane, blood vessel, adipose cartilage, non-articular cartilage, and tendons or ligaments.” Examples of cell or nonstructural tissue include “reproductive cells or tissue, cord blood, amniotic fluid, bone marrow aspirate, lymph nodes, parathyroid glands, peripheral nerve, and pancreatic tissue.”

4. What Constitutes Homologous Use?

Homologous use means the repair, reconstruction, replacement, or supplementation of a recipient’s cells or tissues with an HCT/P that performs the same basic function or functions in the recipient as in the donor, including when such cells or tissues are for autologous use. In October 2015, FDA issued Draft Guidance on Homologous Use. FDA generally consider an HCT/P to be for homologous use when it is used to repair, reconstruct, replace, or supplement:

  • Recipient cells or tissues that are identical (e.g., skin for skin) to the donor cells or tissues, and perform one or more of the same basic functions in the recipient as the cells or tissues performed in the donor; or,
  • Recipient cells that may not be identical to the donor’s cells, or recipient tissues that may not be identical to the donor’s tissues, but that perform one or more of the same basic functions in the recipient as the cells or tissues performed in the donor.

Examples provided by FDA include:

  • A heart valve is transplanted to replace a dysfunctional heart valve. This is homologous use because the donor heart valve performs the same basic function in the donor as in the recipient of ensuring unidirectional blood flow within the heart.
  • Pericardium is intended to be used as a wound covering for dura mater defects. This is homologous use because the pericardium is intended to repair or reconstruct the dura mater and serve as a covering in the recipient, which is one of the basic functions it performs in the donor.

Generally, if an HCT/P is intended for use as an unproven treatment for a myriad of diseases or conditions, the HCT/P is likely not intended for homologous use only.

5. Does FDA Intend to Finalize These Guidances?

In September 2016, FDA held a public meeting entitled, “Draft Guidances Relating to the Regulation of Human Cells, Tissues, and Cellular and Tissue-Based Products.”  FDA sought public comment on the draft guidance documents relating to the regulation of human cells, tissues, and cellular and tissue-based products (HCT/Ps) from a broad group of stakeholders, including tissue establishments, biological and device product manufacturers, health care professionals, clinicians, biomedical researchers, and the public.  In February 2017, FDA published its 2017 calendar year guidance agenda and none of the HCT/P Draft Guidances were includes which suggests that FDA does not intend to finalize them in 2017.  This also raises the possibility that they may be significantly revised.

6. Does the 21st Century Cures Act Impact HCT/Ps?

Yes, but only those that require approval and are not solely regulated under Section 361.  The 21st Century Cures Act, signed into law in December 2016, amends the Federal Food, Drug, and Cosmetic Act to create a process and requirements for designation of a drug as a regenerative therapy. A drug is eligible for this designation if:

  • It meets the definition of a regenerative advanced therapy (“RAT”): “cell therapy, therapeutic tissue engineering products, human cell and tissue products, and combination products using any such therapies or products, except for those regulated solely under section 361 of the [PHS Act] and part 1271 of title 21, Code of Federal Regulations”;
  • The drug is intended to treat, modify, reverse, or cure a serious or life-threatening disease or condition; and
  • Preliminary clinical evidence indicates the drug has the potential to address an unmet medical need.

For products designated as RATs, FDA must take actions to expedite development and review of the drug, including early interactions to discuss the potential for accelerated approval.  In addition, a designated drug may be eligible for priority review or accelerated approval under current FDA regulatory standards, and if approved under accelerated approval would be subject to a confirmatory study.  This new regulatory pathway would permit a RAT to be approved for marketing based on surrogate or intermediate clinical trial endpoints rather than longer term clinical outcomes. Subsequently, a sponsor would have to conduct confirmatory clinical trials to ensure that the surrogate or intermediate endpoint was in fact predictive of patients’ clinical response to the product, otherwise the accelerated approval could be withdrawn.

7. What is the Enforcement Profile?

FDA’s enforcement in the area of HTC/Ps continues to be limited.  In December 2015, FDA issued a Warning Letter to Irvine Stem Cell  Treatment Center.  This Warning Letter covered three physician-operated stem cell treatment centers in California, Florida and New York, and asserted that the centers had unlawfully recovered and processed adipose (fat) tissue to perform stem cell therapy, deviated from both current good manufacturing practice and current good tissue practice, and were not regulated solely under Section 361 and thus required approval. Many wondered if this would portend a more aggressive enforcement profile for HTC/Ps, but since then, FDA has only issued one other Warning Letter in this area.

In August 2016, FDA issued a Warning Letter to Amniotic Therapies, LLC, a supplier of amniotic products including to stem cell clinics. This alleged the company’s products were unapproved biological drugs that do not meet the minimal manipulation and homologous use criteria.  Notably, however, the Company sued FDA on August 19 in the U.S. District Court for Northern Texas, and was granted an emergency motion for a temporary restraining order FDA.  Following the court’s order on August 19, 2016 granting Amniotic Therapies’ emergency motion for a temporary restraining order, the court held a hearing on the merits of the motion on August 31, 2016.  [Later, pursuant to agreed mediation, the parties ultimately negotiated a settlement agreement under which the company agreed to cease manufacturing the subject products, destroy existing inventory, and conduct  testing product to determine the need for future recall.

Thus, FDA’s enforcement in the area continues to be rather limited but nonetheless aggressive in these limited instances.  However, there is every reason to believe that a Trump Administration is unlikely to as aggressively pursue such actions.


1 See 21 CFR §1271.3(f).

Note: A version of this article appeared in the March 15, 2017 edition of the Bloomberg BNA’s Life Sciences Law & Industry Report.

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Key Takeaways From FHA’s Health Law Summit

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Foley recently co-hosted the Florida Hospital Association’s (FHA) 2017 Health Law Summit, which brought together more than 40 in-house attorneys and compliance officers from FHA member hospitals to discuss the current state and future direction of the health care industry.

Amid so much economic and political uncertainty, we are diligent about keeping our fingers on the pulse of the macro trends impacting providers operating in the U.S. health system. While we know you’ve been paying close attention to these developments as well, following is a brief recap that encapsulates the key takeaways from event speakers and other health care practitioners in attendance.

Telehealth and Destination Medicine

Florida has rapidly become a hotspot for the burgeoning area of destination medicine, and hospitals must account for the movement, lest they lose valuable revenue and patients to specialty competitors. While current laws and regulations are complex, there are avenues to create compliant offerings, including telehealth and online second opinion programs.

Health Care Privacy and Cybersecurity

Managing relationships with vendors, especially those who handle protected health information, is key. Best practices include conducting due diligence and negotiating appropriate contractual protection.

Labor and Employment Law

Laws affecting the workplace are in a state of flux, but changes are on the horizon under the new administration, which is generally viewed as being pro-employer. Hospital executives are eager to see how the DOL will be steered on issues such as overtime, worker safety and collective bargaining, to name a few.

False Claims Act Investigations and Enforcement

Civil Investigative Demands (CID) served by the government must be treated differently than other kinds of subpoenas or demands, and misperceived responses can have an adverse impact. In-house counsel who receive CIDs must have an escalation plan that addresses potential high-risk or high-likelihood scenarios, including investigations, litigation, settlements, liability, damages, insurance and disclosures.

Update on Stark Law and Anti-Kickback Statute

Government enforcement of such violations is expanding at a rapid rate, particularly in Florida. There were several notable public settlements in the state last year, as well as changes made to 11th Circuit case law, so it’s important for in-house counsel to stay abreast of these developments.

Boards and Hospital Governance and Compliance

The Department of Justice is increasingly holding individual leaders responsible for the stewardship of their hospitals. Educating hospital boards is vital to effective compliance, especially related to financial arrangements and quality of care.

 

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What To Know About New HHS OIG Exclusion Regs

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On Jan. 12, 2017, the Office of Inspector General of the U.S. Department of Health and Human Services issued the third and final installment of its recent three-part rulemaking effort  a final rule updating its exclusion regulations, 82 Fed. Reg. 4100 (Jan. 12, 2017). This final rule follows two others that were published in December updating the OIG’s civil monetary penalty (CMP) regulations, 81 Fed. Reg. 88,334 (Dec. 7, 2016), and safe harbors under the anti-kickback statute and beneficiary inducement prohibitions, 81 Fed. Reg. 88,368 (Dec. 7, 2016).

The final rule codifies the OIG’s expanded authority to impose exclusions under the Affordable Care Act and the Medicare Prescription Drug, Improvement and Modernization Act of 2003, including discretionary exclusions for obstructing an audit and for making false statements, omissions, or misrepresentations in an enrollment or similar application to participate in a Federal health care program.

The final rule notices an effective date of Feb. 13, 2017. However, on Jan. 20, 2017, the new administration postponed for 60 days the effective date of all federal regulations that have not yet taken effect. Although agencies may propose additional rulemaking, for regulations that “raise no substantial questions of law or policy,” agencies are not required to take any additional action. Thus, this rule will likely take effect following the 60-day freeze, which ends on March 21, 2017.

The effect of exclusion is far-reaching. Until an individual or entity that has been excluded is reinstated into the federal health care programs, no payment will be made by Medicare, including Medicare Advantage and Prescription Drug Plans, Medicaid or any other federal health care program for any item or service furnished, on or after the effective date. Additionally, private payers frequently refuse to contract with excluded persons.

Although the majority of exclusion are derivative of other actions (such as convictions or licensure actions), exclusions can be pursued affirmatively and initiated by the OIG, often by the OIG’s recently established (2015) administrative litigation team.

Like the two rules before it, this final rule provides important guidance on the OIG’s administrative enforcement authorities and expands and clarifies existing provisions, including aggravating and mitigating factors used to determine the length of exclusions.

Refresher on Exclusions

Before discussing the new provisions, the following is a brief overview of the OIG’s exclusion authorities. The majority of the OIG’s exclusion authorities are set forth in Section 1128 of the Social Security Act, 42 U.S.C. 1320a–7, and are implemented by regulations at 42 C.F.R. part 1001.

Mandatory Exclusions: There are four mandatory authorities and nearly 20 permissive exclusion authorities. As the name suggests, mandatory exclusions must be imposed by the OIG when individuals or entities (persons) are convicted of crimes related to certain conduct, namely: (1) misdemeanor or felony convictions related to the federal health care programs; (2) misdemeanor or felony convictions relating to patient abuse in connection with the delivery of a health care item or service; (3) felony convictions relating to health care fraud (i.e., relating to fraud, theft, embezzlement, breach of fiduciary responsibility or other financial misconduct); and (4) felony conviction relating to the unlawful manufacture, distribution, prescription or dispensing of a controlled substance.

Permissive Exclusions: Sixteen permissive exclusions are listed in Section 1128 and a handful of others can be found in other sections of the Social Security Act. The OIG has discretion as to whether to pursue an exclusion under its permissive authorities.

Convictions and Enforcement Actions Lead to Derivative Exclusions: Even when it is not required to do so, the OIG is likely to exclude a person who has been convicted of a crime or when another government agency, such as a state medical board, has taken action. These derivative exclusion actions are easy for the OIG to impose and defend, making them an efficient way to protect the programs.

Definition of a Conviction: Because a large number of derivative exclusions, whether mandatory or permissive, are based on convictions, it is worth noting that the term “conviction” is broadly defined in the statute at 1128(i), 42 U.S.C. 1320a–7(i). The term includes convictions where conviction or other records have been expunged, pleas of nolo contendere, findings of guilt by a court, and participation in deferred adjudication and similar arrangements where judgment of conviction has been withheld.

Length of Exclusion: Base exclusion periods for the most frequently used exclusion authorities, including those based on convictions or licensure actions, are set forth in the exclusion statute at 1128(c)(3), 42 U.S.C. 1320a–7(c)(3). Mandatory exclusions must be, at a minimum, five years. Permissive exclusions based on convictions have a base period of three years. Permissive exclusions based on licensure or state actions are coterminous with the underlying state sanction. The OIG uses aggravating and mitigating factors to adjust the period of exclusion, but not below five years for mandatory exclusions.

Major Provisions in the Final Rule

In the final rule, the OIG adopted the majority of the provisions included in its proposed rule, 79 Fed. Reg. 26,810 (May 9, 2014), but revised some of its proposals, generally in response to public comment. Like the OIG’s other recent rulemakings, this final rule offers insight into how the OIG may use its exclusion authorities as key components of its administrative enforcement efforts.

The final rule:

  1. Expands permissive exclusion authority, pursuant to the ACA, for convictions related to obstructing an investigation to include “audits,” a term the OIG interprets broadly.
  2. Adds permissive exclusion authority from the ACA for making false statements, omissions or misrepresentations in an enrollment or similar application to participate in the federal health care programs, including Medicare Advantage organizations, Medicare prescription drug plan sponsors, Medicaid-managed organizations, and entities that apply to participate as providers or suppliers in organizations or plans.
  3. Expands the OIG’s authority to exclude a person for failing to supply (or allow the examination of) payment information by the secretary or a state health care program to apply not only to persons who furnishing services, but also to those referring or certifying the need for items or services.
  4. Expands the OIG’s authority to grant waivers of certain exclusions that are requested by the administrator of a federal health care program.
  5. Adds a process for requesting early reinstatement when a health care license has been lost and not reinstated.
  6. Adds a 10-year statute of limitations for exclusion actions.

Enrollment Exclusions Merit Oral Argument: For the newly added exclusion authority for false statements in an enrollment application, the OIG finalized its proposal to allow the presentation of oral argument to an OIG official before the exclusion is imposed, which is consistent with its practice in exclusion actions brought under Section 1001.701 or Section 1001.801, two other exclusions that also are not based on a conviction or other official action and go into effect within 20 days if not contested and prior to an administrative law judge hearing.

Early Reinstatement for License Revocations: The OIG also finalized its proposed process for early reinstatement, which, when certain conditions are met, is available to those that have been excluded based on the loss of a health care license that has not been reinstated. Normally, a person who is excluded due to a loss of license may not be considered for reinstatement until the person has regained the license in the state where it was originally revoked. Historically, that requirement has led to much longer periods of exclusion for persons subject to licensure actions than those who have been convicted of a crime, including convictions mandating exclusion. However, the OIG decided to prohibit persons who lost their licenses for reasons related to abuse or neglect from applying for early reinstatement.

Changes From the Proposed Rule in the Final Rule

Aggravating Factors: In keeping with changes made in its two final rules issued in December, the OIG raised the dollar amount for the aggravating factors related to financial loss from $5,000 and $1,500 to $50,000. The OIG initially proposed to raise the threshold only to $15,000. This change to $50,000 keeps the financial loss aggravating factors consistent among the OIG’s various authorities with one important exception. For exclusions under Section 1128(b)(6) of the act, 42 U.S.C. 1320a–7(b)(6), the OIG retained its proposed $15,000 threshold because those exclusions are based on unnecessary or substandard care, not convictions.

Statute of Limitations: The OIG scrapped its proposal to implement its position that there is no time limitation to exclusions imposed under Section 1128(b)(7) of the act. Many commenters objected to the OIG’s interpretation that no statute of limitations exists for such exclusions. Some argued that even when a statute is silent on periods of limitations, courts often apply some period of limitation. Other commenters noted the administrative burden this would place on providers because they would be required to retain documentation relevant to OIG authorities indefinitely. In the final rule, the OIG adopted a 10-year period, which it notes is grounded in the False Claims Act’s period of limitations, and which it believes will provide certainty to the industry while preserving the OIG’s ability to protect federal health care programs and beneficiaries from untrustworthy persons identified in FCA cases or otherwise.

Convictions Related to Controlled Substances: The OIG also decided against a proposed limit on its exclusion authority for convictions related to controlled substances. The OIG had proposed to limit the exclusion to those who were convicted for conduct that occurred during a time when they were employed in the health care industry. The OIG was persuaded to make the change based on comments noting that the proposal would not protect beneficiaries from those who leave the health care industry before committing a crime but then re-enter the industry shortly thereafter. The OIG also decided not to remove aggravating and mitigating factors associated with the exclusion authority or the exclusion authority related to exclusion from a state health care program.

Ownership and Control Interest in Sanctioned Entities: Several commenters complained that the proposed rule’s language for the exclusion of individuals with ownership or control interest in sanctioned entities exceeded the OIG’s statutory authority. The OIG modified the regulatory text to clarify that in cases where the sanctioned entity has been excluded, the individual’s exclusion will remain in effect for as long as the term of the entity’s exclusion. 82 Fed. Reg. at 4106.

Key Points for Future Exclusion Enforcement

This final rule shows that the OIG continues to evaluate and update its enforcement authorities with an eye toward increased affirmative enforcement actions but that it is also willing to make practical changes to its enforcement policies.

  1. New early reinstatement process is available for those who have been excluded for loss of license, if certain conditions are met, so long as the loss of license was not due to patient abuse or neglect.
  2. The OIG has updated several aggravating factors in the exclusions regulations.
  3. Despite proposing to codify its interpretation that 1128(b)(7) exclusions do not have a statute of limitations, the OIG was receptive to comments that there should be some statute of limitations, and in the final rule adopted a 10-year statute of limitations.
  4. In line with the December updates to the CMP regulations, the OIG included provisions in this rule that highlight the importance it places on protecting beneficiaries. It increased most financial loss aggravating factors to $50,000, except for exclusions based on unnecessary or substandard care, which were increased to a $15,000 threshold. The OIG also finalized a prohibition in its early reinstatement process providing that those who lost a license for reasons related to abuse or neglect are not eligible for early reinstatement.

The final rule, and the underlying exclusion regulations, should be reviewed closely by any individuals or entities that are facing enforcement actions that, depending upon characterization of the underlying conduct, may give rise to mandatory or permissive exclusions. The “Health Care Fraud and Abuse Control Program Annual Report” for fiscal year 2016 (released in January 2017) reports 3,635 exclusions, indicating that OIG is actively applying its exclusion authorities.

Judith A. Waltz is a partner and health lawyer with Foley & Lardner LLP in San Francisco in the firm’s health care practice. Jill S. Wright is a special counsel and health care lawyer with Foley & Lardner in Washington, D.C., in the firm’s health care practice.

Click here for the original article which appeared in Law360.  

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New Hampshire Finalizes Opioid Prescribing Rules

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New Hampshire is starting 2017 with stepped-up efforts to manage its oft-described opioid epidemic.  Though the most recent regulations are directed at individual prescribers, and do not apply to the administration of opioids to patients in a health care setting, now is the time for New Hampshire hospitals, ambulatory surgical centers, urgent care facilities, and other health care facilities to revisit their protocols, record-keeping practices, and informed consent agreements relating to opioid prescribing.

In recent weeks the New Hampshire Board of Medicine and the Board of Nursing have each finalized and adopted, with minor amendments, emergency opioid prescribing rules that had been issued during 2016.  Both sets of rules were effective January 1, 2017.

The final regulations follow on the heels of clinical guidelines and standards for managing chronic, non-cancer pain with opioids that have been published by the Centers for Disease Control and Prevention and various national professional societies, by establishing a legal framework of safe opioid prescribing practices for  New Hampshire physicians and advanced practice registered nurses (APRNs).  The regulations also provide 3 exemptions from the general requirement to query the Controlled Drug Prescription Health and Safety Program (the State’s prescription drug monitoring program or “PDMP”).

The final regulations set forth a laundry list of requirements that New Hampshire APRNs and physicians must meet before they may prescribe (or continue to prescribe) opioids to treat non-cancer and non-terminal pain (acute and chronic).  Specifically, licensees must, among other things and with certain limited exceptions, query the PDMP, conduct and document a history and physical exam, conduct and document a risk assessment (the evidence-based screening tool Screener and Opioid Assessment for Patients with Pain (SOAPP) is suggested but not required), prescribe the lowest effective dose for a limited duration, document a pain treatment plan, create and document a written treatment agreement with the patient, and utilize a written informed consent that explains risks associated with opioids, including addiction, overdose and death, physical dependence, physical side effects, hyperalgesia, tolerance, and crime victimization.  The rules also specify the information that must be provided to patients prior to prescribing opioids for either acute or chronic pain.  In an emergency department, urgent care setting, or walk-in clinic, opioid prescriptions cannot exceed 7 days (or such fewer days as may be medically necessary to treat the patient’s medical condition).  Clinical coverage must be made available 24 hours per day, 7 days  per week for the management of patients treated with opioids for chronic pain.

The goal of these final regulations is to encourage licensees to assure that opioids are prescribed to New Hampshire patients only in limited and clinically appropriate circumstances, and that sufficient information, tools, and support are made available to patients to prevent overuse, addiction, and overdose.  Practitioners who historically have been adverse or resistant to treating pain with opioids due to the potential for patient overuse or addiction, or concerns for personal liability, can now rely upon the rules as a legal framework and best practice for safe prescribing practices.  The adoption of these final rules should serve as a reminder to New Hampshire health care facilities that all of its prescribing practitioners play a vital role in combatting opioid abuse in New Hampshire, which has been characterized by federal Drug Enforcement Agency officials as “ground zero” in the opioid epidemic.

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Eight Things to Know About the New Federal Substance Use Disorder Privacy Rule

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A final rule published on January 18 implements the first major revisions to the federal regulations governing the confidentiality of substance-use disorder patient records (Part 2) since 1987. It finalizes a proposal from last February to modernize the regulations in light of the significant changes in the health care delivery system. On the same day, the Substance Abuse and Mental Health Services Administration (SAMHSA), also issued a supplemental notice of proposed rulemaking to request comments on the disclosure of Part 2 covered data by contractors, subcontractors, and legal representatives for purposes of carrying out payment, health care operations, and other health care related activities.

The supplemental rulemaking requests comments by February 17, 2017, which is also the date the Final Rule would ordinarily be effective. However, a January 20, 2017 presidential memorandum to the heads of executive departments and agencies directs that all regulations that have not yet taken effect, if permitted by applicable law and not subject to an exception, be temporarily postponed for 60 days from January 20 “for the purpose of reviewing questions of fact, law, and policy they raise.” This directive means that the effective date for the Final Rule is delayed until at least March 21, 2017. If SAMHSA determines that the Final Rule raises “substantial questions of law or policy,” further action may be taken, potentially including delay or withdrawal of the rule or request for additional comment.

Here are eight key takeaways from the Final Rule:

  1. Patient Consent Forms May Authorize a General Disclosure to Intermediate Entities Like Health Information Exchanges and Treating Providers (42 C.F.R. § 2.31(a)(4))

Part 2 requires that patient consent forms identify the recipients of confidential information. The Final Rule continues to permit consent forms to meet this requirement by authorizing disclosures to specific individuals or treating entities like hospitals or clinics; in addition, consent forms may now authorize disclosures pursuant to a general designation if certain requirements are met. For instance, the Final Rule allows a consent form to authorize disclosure to a health information exchange or other intermediate entity and “my current and future treating providers.” When this kind of general designation is used, the intermediate entity may further disclose the patient identifying information it receives only to those providers it can verify have a treating provider relationship with the patient. Further, the Final Rule entitles patients who have consented to disclose their information using a general designation to receive from the intermediate entity, upon written request, a list of entities to which their information has been disclosed within the last two years pursuant to the general designation.

  1. Patient Consent Forms Must Include an Explicit Description of the Substance Use Disorder Information that May be Disclosed (42 C.F.R. § 2.31(a)(3))

The Final Rule clarifies the Part 2 requirement that consent forms must include the amount and kind of information to be disclosed by stating that there should be “an explicit description of the substance use disorder information that may be disclosed.” SAMHSA suggests that the types of information that could be specified include diagnostic information, medications and dosages, lab tests, allergies, substance use history summaries, trauma history summary elements of a medical record, employment information, living situation and social supports, and claims or encounter data. The agency also states that it is permissible for a patient to make a selection like “all my substance use disorder information” as long as the consent form accommodates more specific limitations.

  1. A Qualified Services Organization May Provide Population Health Management Services (42 C.F.R. § 2.11)

In certain circumstances, Part 2 permits disclosure without patient consent to a Qualified Service Organization (QSO) that provides services to a Part 2 Program. The Final Rule clarifies that population health management is one kind of service that may be provided by a QSO. SAMHSA defines “population health management” as “increasing desired health outcomes and conditions through monitoring and identifying patients within a group.” The agency also takes the position that disclosures for population health management pursuant to a QSO agreement must be limited to the specific offices or units that are tasked with carrying out population health management for the organization. Care coordination is not considered by SAMHSA to be population health management because it includes a patient treatment component.

  1. Health Care Providers Do Not Become Part 2 Programs Simply Because They Provide Screening, Brief Intervention, or Referral to Treatment (SBIRT) (42 C.F.R. § 2.11)

SAMHSA did not finalize a proposed revision to the definition of Part 2 “program.” However, the agency states in the preamble to the Final Rule that health care providers do not become a “program” simply because they provide screening, brief intervention, or referral to treatment (SBIRT) within the context of general health care. Consistent with previous guidance, SAMHSA also reiterates that “holds itself out” means “any activity that would lead one to reasonably conclude that the individual or entity provides substance use disorder diagnosis, treatment, or referral for treatment.” This includes authorization such as licensure or certification by the state or federal government to provide such services; advertisements, notices, or statements related to such services; and consultation activities related to such services.

  1. The Prohibition on Re-Disclosure Applies Only to Identifying Information (42 C.F.R. § 2.32(a))

The Final Rule clarifies that the Part 2 prohibition on re-disclosure provision applies only to information that would identify, directly or indirectly, an individual as having been diagnosed, treated, or referred for treatment for a substance use disorder. Other health-related information that is unrelated to the substance abuse disorder, such as treatment for an unrelated health condition, may be re-disclosed, if permissible under the applicable law. In addition, if the origin of the data (such as a treatment clinic) would reveal that the individual has a substance abuse disorder, then the disclosure would be prohibited.

  1. Confidential Information May Be Disclosed Without Consent to Meet a Bona Fide Medical Emergency (42 C.F.R. § 2.51)

The Final Rule aligns the definition of “medical emergency” with the statutory definition. The revised language states that a patient’s identifying information may be disclosed to medical personnel to the extent necessary to meet a bona fide medical emergency, in which the patient’s prior informed consent cannot be obtained. SAMHSA continues to require the Part 2 program to immediately document, in writing, specific information related to the medical emergency.

  1. Part 2 Security Requirements Apply to Both Electronic and Paper Records (42 C.F.R. §§ 2.16, 2.31, 2.53)

The Final Rule incorporates electronic records in the security requirements under Part 2. Part 2 programs and other lawful holders of patient identifying information are required to have in place formal policies and procedures for the security of both paper and electronic records. Moreover, the Final Rule establishes procedures for sanitizing electronic media for handling electronic records subsequent to the discontinuation of a Part 2 program. Similarly, the electronic records are included in the exception for disclosure without consent for audit and evaluation activities.

  1. Confidential Information May Be Disclosed For Scientific Research Without Patient Consent to Recipients Who Meet Relevant HIPAA and Common Rule Requirements (42 C.F.R. § 2.52)

The Final Rule liberalizes the Part 2 exception allowing patient information to be disclosed without consent for the purpose of conducting scientific research if the program director makes a determination that specified requirements have been met. It allows any individual in lawful possession of Part 2 data to disclose the information to qualified research personnel for the purpose of conducting scientific research if applicable requirements are satisfied, including privacy regulations under HIPAA and regulations for the protection of human subjects under the Common Rule. The Final Rule also addresses data linkages to enable researchers holding Part 2 data to link to federal data sets.

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HRSA Announces Final Rule on Civil Monetary Penalties for Drug Manufacturers that Overcharge 340B Covered Entities

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A new regulation issued by the Health Resources and Services Administration (“HRSA”) sets forth a process by which civil monetary penalties may be imposed on drug manufacturers that knowingly and intentionally charge 340B covered entities for covered outpatient drugs more than the statutory ceiling price. The regulation addresses the ceiling price calculation for drugs purchased pursuant to the 340B Drug Pricing Program (“340B Program”), and provides that drug manufacturers may be subject to a civil monetary penalty of up to $5,000 for each instance of overcharging. The regulation finalizes a proposal dating back to June 2015. The regulation will be enforced beginning on April 1, 2017.

The civil monetary penalties would not be calculated and imposed by HRSA’s Office of Pharmacy Affairs, but by the Office of Inspector General (“OIG”). The civil monetary penalties would be in addition to any refunds to covered entities that may be required by the 340B Program. The final rule does not provide a mechanism for covered entities to file a complaint against a drug manufacturer for overcharging for 340B drugs. Once HRSA’s 340B administrative dispute resolution rules are finalized and the appropriate system has been established, a covered entity could submit a claim against a manufacturer for an instance of overcharging for administrative dispute resolution.

The new regulation requires drug manufacturers to calculate the 340B ceiling price for each covered outpatient drug, by National Drug Code (NDC), on a quarterly basis. The 340B ceiling price is based on the Average Manufacturer Price (AMP) for the prior quarter, minus a Unit Rebate Amount. For new drugs, manufacturers will need to estimate the 340B ceiling price and then calculate the actual 340B ceiling price once the appropriate data is available. If an overcharge has a occurred as a result of this estimation, drug manufacturers must refund or credit a covered entity the difference between the estimated and actual 340B ceiling price within one hundred and twenty days. Overcharges may also occur if a drug manufacture does not credit or refund a covered entity after subsequent recalculations of the ceiling price by the Centers for Medicare and Medicaid Service (“CMS”). Overcharges are determined on an NDC code basis, and may not be offset by other discounts the manufacturer provides on any other NDC. Drug manufacturers are also required to ensure that 340B discounts are provided through distribution arrangements made by the manufacturer.

The new regulation is based upon a requirement set forth in the Affordable Care Act, and comes at a time when drug prices and the 340B Program are receiving heightened scrutiny by the incoming Congress and administration. We will continue to report on modifications to the 340B Program as they develop.

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Hawai’i Receives Approval for the First State Innovation (Section 1332) Waiver

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The federal Department of Health and Human Services and Department of Treasury (the Departments) agreed that certain small employer health insurance coverage provisions of the Affordable Care Act (ACA) would be waived for the state of Hawai’i, beginning with January 1, 2017. The waiver was authorized pursuant to Section 1332 of the ACA, which allows states to apply for a State Innovation Waiver.

Hawai’i’s waiver is the first of its kind.

Section 1332 State Innovation Waivers offer states flexibility to waive key insurance coverage provisions of the ACA, including the requirement for individuals and employers to maintain insurance coverage for themselves or their employees (the individual and employer mandates), requirements related to the scope of available benefits provided through insurance (essential health benefits), requirements for creation of a marketplace for purchasing health insurance coverage (exchanges), requirements for the credentialing of health plans offered through the exchanges (QHPs), and limits on deductibles and cost sharing for QHPs. State Innovation Waivers also allow states to request waivers of cost sharing reductions and tax credits available for individuals and businesses pursuant to the ACA; the amount of these reductions and tax credits are available to the state for the operation of a replacement program.

Under its approved application, Hawai’i will cease operation of the Small Business Health Options Program (SHOP) required by the ACA effective January 1, 2017, for a 5 year period which may be extended. Instead, Hawai’i will operate the business insurance program, known as “Prepaid,” that has been in place since 1974. Under Hawai’s Prepaid Health Care Act, employers are required to provide insurance to employees that meet requirements established by state law. To receive approval from the Departments for the waiver, and as a condition of receiving federal funds, Hawai’i demonstrated that its program met or exceeded the scope of coverage that would have been available under the ACA, provided coverage and cost sharing protection that are at least as affordable as available under the ACA, and provided coverage to at least as many residents as under the ACA. Hawai’i will receive quarterly payments from the federal government for the operation of this program, equal to the estimated amount of tax credits that would have been provided to small employers in Hawai’i pursuant to the SHOP program.

The awarding of the section 1332 waiver to Hawai’i represents the first State Innovation Waiver to modify requirements of the ACA. Section 1332 was developed as part of the ACA to allow states, such as Hawai’i, to maintain coverage programs that predated the ACA or to allow states to experiment with coverage programs that are more robust or that differ from the form required by the ACA. Currently, at least 9 states have enacted laws authorizing state officials to analyze or submit an application for a section 1332 waiver. As discussions about the ACA are taken up by the new Congress and new administration, section 1332 waivers will continue to influence how states and stakeholders evaluate their options.

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