News / Resources

Topics covered in this issue of the Health Law Update include:

• March Madness Comes Early to Health Reform
  • Timeline Set for Healthcare Reform
  • HHS Releases Special Report; Launches New Website
  • FY 2009 Spending Bill Signed Into Law
  • Baker Hostetler Clients and Friends to Hear Directly From Congressional Leaders on Capitol Hill
• Employee Free Choice Act Introduced in Congress
• Generic Biotech Drug Bill Introduced in the House—Senate Version to Follow Shortly
• Congress Proposes Federal False Claims Act Overhaul
• Recovery Act Includes Broad New Whistleblower Provisions
• Friends and Family Local Transportation Plan Approved in OIG Opinion
• CMS Sets Deadline for Including Medicare Advantage Patients in FY 2006 DSH and LIP Payment Calculations
• HHS Proposes Rescission of “Conscience Rule”
• Restrictions Lifted on Federal Funding of Human Embryonic Stem Cell Research

MARCH MADNESS COMES EARLY TO HEALTH REFORM

March Madness came early to the health reform effort as the President and Congress announced an ambitious timeline for crafting legislation and signing it into law. The administration also released a special report and a new website aimed at supporting this effort. Finally, the President signed the FY 2009 appropriations bill into law, thus completing the work left unfinished by the 110th Congress.

Timeline Set for Healthcare Reform

At a forum on health reform held on March 5, 2009, for members of Congress, community leaders and stakeholders, and hosted by the White House, President Obama stated that “our goal will be to enact comprehensive healthcare reform by the end of the year.” Following this announcement, House Committee Chairs Henry Waxman (D-Calif.), Charles Rangel (D-N.Y.) and George Miller (D-Calif.) pledged to send healthcare reform legislation to the House floor for consideration prior to the August recess—generally following the legislative timeline proposed by Finance Committee Chair Max Baucus (D-Mont.) for the Senate. On the same day, a bi-partisan group of House moderates kicked off the legislating tsunami with the introduction of the “Healthy Americans Act” (H.R. 1321) aimed at reforming the insurance market and delinking healthcare coverage from employment.

Jurisdiction over healthcare in the House is shared among three primary committees: Energy and Commerce, chaired by Rep. Waxman; Ways and Means, chaired by Rep. Rangel; and Education and Labor, chaired by Rep. Miller. Reform elements currently under consideration by the committees include addressing Medicare payment policy within the broader context of a national health reform bill.

Sen. Baucus and Health, Education, Labor and Pensions Committee Chair Edward Kennedy (D-Mass.) are spearheading health reform efforts in the Senate. In November 2008, Sen. Baucus released an 89-page blueprint outlining specific options and goals for reforming healthcare that include a “play or pay” mandate for employers of a certain size and tax credits for individuals and small employers who purchase private insurance coverage. See the November 13, 2008, issue of the Health Law Update. Building on a number of discussions with stakeholders, Sen. Baucus is expected to hold a series of “roundtable discussions” on overhauling and paying for healthcare reform, with the goal of sending a bill to the Senate floor in July.

HHS Releases Special Report; Launches New Website

The U.S. Department of Health and Human Services (HHS) released a report summarizing the results of some 30,000 participant surveys and 3,200 group reports of those who hosted and participated in the Transition Team’s healthcare discussion initiative. See the December 11, 2008, issue of the Health Law Update. Not surprisingly, the cost of healthcare services and health insurance ranked among the top concerns of those who took part in the initiative.

Additionally, a new website dedicated to the administration’s effort—www.healthreform.gov—was launched this month by HHS for the purpose of soliciting proposals, questions and comments on healthcare reform.

FY 2009 Spending Bill Signed Into Law

Completing work left undone by the 110th Congress, President Obama signed the FY 2009 Omnibus Appropriations Act (Pub. L. 111-8) into law on March 11, 2009. Included in the $410 billion Appropriations Act are funding increases for the National Institutes for Health (3.2 percent), the Agency for Healthcare Research and Quality (11.2 percent) and Title VII health professions programs (14.3 percent). Since October 1, 2008, programs within HHS have been operating at prior funding levels under a continuing resolution.

For more information, please contact Susan Feigin Harris, or 713.646.1307, or Kathleen P. Rubinstein, MPA, Policy Analyst, or 713.276.1650.

Baker Hostetler Clients and Friends to Hear Directly From Congressional Leaders on Capitol Hill

On March 25, 2009, in Washington, D.C., clients and friends of Baker Hostetler will have a rare opportunity to hear directly from key members of the Senate and House of Representatives on the many important issues facing the health industry, businesses, our economy and our nation. Among the distinguished list of members from the Senate, House and the administration are Sens. Baucus, Charles Grassley (R-Iowa) and Chuck Schumer (D-N.Y.) and Rep. Earl Pomeroy (D-N.Dak.). In this unprecedented year, we are pleased to bring to our clients those individuals who will be central to the health reform debate.

For more information about the 20th Annual Tax and U.S. Legislative Policy Seminar, please contact Susan Feigin Harris, or 713.646.1307, or Kathleen P. Rubinstein, MPA, Policy Analyst, or 713.276.1650.

EMPLOYEE FREE CHOICE ACT INTRODUCED IN CONGRESS

On March 10, 2009, the Employee Free Choice Act (EFCA) was introduced in both the House of Representatives and the Senate by Sen. Tom Harkin (D-Iowa) and Rep. Miller. EFCA would allow labor unions to become employees’ bargaining representatives on the basis of a “card check” recognition process, thereby allowing employees to vote without a secret ballot election to determine whether they want union representation. In addition, the bill mandates binding arbitration of initial collective bargaining agreements and provides more stringent penalties against employers who commit unfair labor practices during an organizing campaign or while negotiating a first time labor contract.

Support for EFCA in Congress is split along party lines with Democrats mostly favoring the legislation and Republicans generally opposing it. While passage of the legislation in the House is virtually assured, the critical question is whether EFCA supporters have the 60 votes necessary to overcome an anticipated filibuster in the Senate by opponents of the legislation.

It is expected that the Senate will not consider the legislation until the Minnesota race between Republican Norm Coleman and Democrat Al Franken is decided. Assuming that Mr. Franken is seated in the Senate, Democrats will have 59 members in their caucus and will need at least one additional vote to beat the expected filibuster. In 2007, Sen. Arlen Specter (R-Pa.) joined the Democrats in voting to end the Republican filibuster. At this point, several senators on both sides of the aisle are refraining from announcing their position on EFCA, and it is impossible to predict whether it will survive a filibuster in the Senate.

Organized labor and the business community have promised intensive lobbying efforts over the next few months as the bill moves through Congress. However, it is widely anticipated that attempts will be made to negotiate a compromise version of EFCA to allow for its passage. Potential compromises could include elimination of the binding arbitration provision, a requirement that card check recognition only be allowed where a super majority of employees support the union or substitution of an expedited election procedure for the current election process.

Unions active in the healthcare industry—including SEIU and the California Nurses Association—have been mobilizing for massive organizing efforts in anticipation of EFCA becoming law. Given that labor unions win nearly 70 percent of the NLRB representation elections they participate in currently, the organizing risk facing employers in this industry will be substantial. Employers should begin preparing for EFCA today by auditing their current employee relations practices, planning for the anticipated changes in a post-EFCA world and training their managers and employees with regard to union awareness in general and card signing in particular.

To obtain additional information on how employers can prepare for EFCA, along with news about the legislation, its history and other resources, please visit Baker Hostetler’s dedicated website at www.EFCAnewswire.com.

For more information, please contact Mike Asensio, or 614.462.2622.

GENERIC BIOTECH DRUG BILL INTRODUCED IN THE HOUSE—SENATE VERSION TO FOLLOW SHORTLY

Reps. Waxman, Frank Pallone (D-N.J.), Nathan Deal (R-Ga.) and Jo Ann Emerson (R-Mo.) introduced a bipartisan bill (H.R. 1427, the “Promoting Innovation and Access to Life-Saving Medicine Act”) that would give the Food and Drug Administration (FDA) authority to approve generic versions of biological drug products. The Senate is expected to introduce its version of the bill in the near future.

To date, the FDA has not published regulations that delineate the approval process for generic biological drugs, also known as “biosimilars” or “follow-on biologics.” However, under H.R. 1427 generic biotech drug manufacturers could be granted regulatory approval if they demonstrate “no clinically meaningful differences” between the generic and brand name products.

The development of biotech drugs is much more complex than traditional chemically synthesized drugs. This complexity will add considerable time and cost to biotech drug development for generic manufacturers. Acknowledging that the more complicated manufacturing process is difficult if not impossible to replicate, the bill provides that the generic maker must show clinical equivalence rather than bioequivalence as is currently required for chemically synthesized drugs. The proposed bill also requires that the two products are highly similar in molecular structure and that they share the same mechanisms of action, if known. Alternately, the generic biotech drug manufacturer may establish that the product is “biogeneric,” meaning interchangeable with the brand name product. Such products could be safely substituted for the pricier brand-name biotech drugs.

H.R. 1427 provides that the FDA may require the dissimilar product manufacturer to conduct pre-approval clinical trials to establish “no clinically meaningful differences” or post-approval trials as part of an on-going safety program.

The bill grants market-exclusivity periods that are consistent with chemical drug exclusivity under Hatch-Waxman. A novel brand name biotech product would be entitled to five years exclusivity, while a modified brand name product would be entitled to three years exclusivity. Both could be extended up to one year if new indications or pediatric uses are developed to the FDA’s satisfaction. The first manufacturer of an approved generic version of the brand name biotech drug would enjoy six months market exclusivity.

For more information, please contact Karen A. Weaver, or 310.442.8866.

CONGRESS PROPOSES FEDERAL FALSE CLAIMS ACT OVERHAUL

In response to recent federal court decisions limiting federal False Claims Act (FCA) liability, Sen. Grassley, joined by other legislators, has filed two bills with the goal of expanding the scope of the FCA. According to Sen. Grassley, the False Claims Act Clarification Act of 2009 (S. 458) “is needed to correct recent decisions by various federal courts that have limited the scope and application of the FCA through interpretations that are contrary to the original congressional intent of the 1986 amendments to the statute.” The legislation is similar to that which Sen. Grassley sponsored last session and would expand the definition of “claim” to include “any request or demand…for money or property…whether or not the United States has title to the money or property, that is presented to an officer, employee or agent of the United States; or is made to a contractor, grantee, or other recipient if the United States Government provides or has provided any portion of the money or property requested or demanded; or will reimburse such contractor, grantee, or other recipient for any portion of the money or property.”

Similarly, the Fraud Enforcement and Recovery Act of 2009 (S. 386) introduced by Sens. Patrick J. Leahy (D-Vt.) and Grassley to improve enforcement of mortgage fraud, securities fraud, financial institution fraud and other frauds related to federal programs, proposes to change the language in 31 U.S.C. 3729(a) of the FCA to eliminate terminology that has been construed to limit FCA violations to actual knowledge that the claims will be paid by government. In United States ex rel. Totten v. Bombardier Corp., 380 F.3d 488 (D.C. Cir. 2004), the court found that “under the plain language of Section 3729(a)(1) claims must be presented to an officer or employee of the government” for FCA liability to attach. Similarly, in Allison Engine Co. v. United States ex rel. Sanders, 128 S.Ct. 2123 (2008), the U.S. Supreme Court held that to be liable under the FCA for false statements or conspiracy, the defendant must have made the statement with the intent of getting a false claim paid or approved by the government itself and not merely by an intermediate entity that would be paying the claim with government funds. See the June 12, 2008, issue of the Health Law Update.

As such, these bills would undo the limiting interpretation of the scope of the FCA by the courts and clarify that subcontractors submitting false claims are covered under the FCA without regard to whether they deal directly with the government. Additionally, the False Claims Act Clarification Act of 2009 addresses several contested provisions of the FCA. The legislation would narrow the circumstances under which the public disclosure bar can be invoked, make clear certain whistleblower protections afforded by the FCA and allow for government employees to act as qui tam relators in limited circumstances when they have reported activities to their supervisor and the Inspector General of the affected agency or the Attorney General and no action is taken for at least 18 months.

For more information, please contact B. Scott McBride or 713.646.1390, or Summer D. Swallow, or 713.646.1306.

RECOVERY ACT INCLUDES BROAD NEW WHISTLEBLOWER PROVISIONS

According to its preamble, the American Recovery and Reinvestment Act of 2009 (Recovery Act) is intended to promote job preservation and creation, infrastructure investment, energy efficiency and science, assistance to the unemployed and fiscal stabilization. But employers should be aware that the Recovery Act also creates powerful “whistleblower” protection for employees. These provisions apply to employers that receive a contract, subcontract, grant or other payment funded in whole or in part by the federal stimulus package.

For more information, please see the Baker Hostetler Executive Alert of March 18, 2009.

FRIENDS AND FAMILY LOCAL TRANSPORTATION PLAN APPROVED IN OIG OPINION

While the HHS Office of Inspector General (OIG) since 2002 has considered enacting a safe harbor for complimentary local transportation for beneficiaries, the OIG continues to evaluate local transportation proposals on a case-by-case basis under the advisory opinion process. In the latest Advisory Opinion No. 09-01, a skilled nursing facility proposed offering complimentary local transportation for family and friends of its residents to the facility. The facility, which was not readily accessible by public transportation, also was separated from part of its primary service area by a $9.00 toll bridge. The proposed complimentary transportation service generally would pick up and drop off friends and family at designated public locations within the facility’s service area and only provide transport to and from the facility.

The OIG analyzed the proposal by first reviewing the following adverse factors, that have been a touchstone in past advisory opinions:

(1) Is the transportation offered in a manner related to referrals, such as selection of passengers based upon a diagnosis, condition or treatment that might result in lucrative revenues or selection based on a patient’s insurance coverage? In this case the OIG found that it was not. However, in its review of this factor, we believe the OIG may have made its most important observation in this opinion. The OIG stated in a footnote that the likelihood that the free transportation might induce a passenger to choose the facility as his or her Medicare or Medicaid nursing facility in the future “was too speculative to constitute an impermissible inducement.” This may open the door to other friend and family convenience programs.

(2) Is luxury or specialized transportation such as limousines, airline tickets or ambulance transports involved? The OIG, in this case, approved the provider’s plan to use a facility van.

(3) Does the program involve longer-distance transports, especially to beneficiaries residing outside an offeror’s primary service area such as “leap-frog” arrangements that provide free or subsidized transportation to beneficiaries traveling from outside the provider’s local area, potentially bypassing other providers? See OIG Advisory Opinion No. 07-02 prohibiting subsidization of long distance ambulance transports. In this case, the transportation was local, although for a $9.00 toll, the bridge should be a relatively long span!

(4) Are no other reasonable means of transportation available? Does the area have adequate public transit service? In this case, no reasonable public transport was available to the facility.

(5) Does the provider intend to market or advertise the free transportation arrangement? In this case, the OIG approved the facility’s proposal to utilize limited advertising of the proposed arrangement locally within a few community newspapers and through handbooks and/or written materials provided to patients by discharge planners at local hospitals and by notice to the facility’s residents. This appears to be an area of apparent liberalization by the OIG, as most prior local transportation opinions precluded advertising such service.

(6) Does the provider provide free transportation only to or from its premises? In this case, the provider only offered service to its facility. Facilities that offer scheduled transportation from public locations, as discussed in the Advisory Opinion, also should confirm that their transportation plan and vehicles comply with state and local public transportation statutes and regulations.

(7) Does the provider bear the costs of the free transportation? Transportation arrangements that shift costs to federal healthcare programs are suspect. In this instance no cost shifting was involved.

The program approved by the OIG in this instance goes beyond the local transportation approved in the OIG Letter Clarifying the Provision of Complimentary Local Transportation for Program Beneficiaries and prior opinions, but we believe it is consistent with congressional intent not to impose civil monetary penalties against persons offering complimentary local transportation of nominal value. H.R. Conf. Rep. No. 104-736, at 255 (1996).

For more information, please contact Robert M. Wolin, or 713.646.1327, or Donna S. Clark, or 713.646.1302.

CMS SETS DEADLINE FOR INCLUDING MEDICARE ADVANTAGE PATIENTS IN FY 2006 DSH AND LIP PAYMENT CALCULATIONS

On March 6, 2009, the Centers for Medicare and Medicaid Services (CMS) issued Change Request 6329, which requires non-teaching prospective payment system (PPS) hospitals that received Medicare disproportionate share hospital (DSH) payments in FY 2006 and inpatient rehabilitation facilities (IRFs) that received low income patient (LIP) payments in FY 2006 to submit informational-only bills to their Medicare contractors for Medicare Advantage (MA) beneficiaries that were treated between October 1, 2005, and September 30, 2006. This documentation will allow CMS to ensure that MA patient days are included in the DSH and LIP payment calculations for FY 2006. Inpatient prospective payment system (IPPS) hospitals and IRFs that did not receive a DSH or LIP payment for FY 2006 are not required to submit claims, although they may choose to do so. Teaching hospitals are not required to submit this documentation to their contractors because they already should have submitted MA claims as a part of the indirect medical education (IME) reimbursement process. Affected hospitals must submit their FY 2006 claims to their contractors between July 1, 2009, and November 30, 2009. With respect to the Medicare DSH calculation, CMS intends to include the MA days in the Medicare fraction of the Medicare DSH calculation, based on the agency’s belief that “such patients by definition are entitled to Medicare Part A.”

Change Request 6329 has resulted in revisions to Ch. 3 sections 20.3 and 140.2.4.3 of the Medicare Claims Processing Manual. MedLearn Matters article MM6329 also discusses these FY 2006 requirements.

For more information, please contact Gregory N. Etzel, or 713.646.1316, or Krista M. Barnes, or 713.646.1352.

HHS PROPOSES RESCISSION OF “CONSCIENCE RULE”

On March 10, 2009, HHS published a proposed rule (74 Fed. Reg. 10207) to rescind its recent final rule entitled “Ensuring that Department of Health and Human Services Funds Do Not Support Coercive or Discriminatory Policies or Practices in Violation of Federal Law” (73 Fed. Reg. 78072). The final rule, promulgated in the closing days of the Bush administration and colloquially referred to as the “Conscience Rule,” bears an effective date of January 20, 2009 and is designed to administer certain statutory provisions, including the Conscience Clauses/Church Amendments (42 U.S.C. § 300a-7), Section 245 of the Public Health Service Act (42 U.S.C. 238n) and the Weldon Amendment (currently adopted as part of the Consolidated Security, Disaster Assistance, and Continuing Appropriations Act, 2009, Pub. L. 110-329).

As discussed in greater detail in the January 8, 2009, issue of the Health Law Update, the Conscience Rule generally prohibits discrimination by recipients of federal funds against entities and individuals who refuse to provide or be trained to provide, engage in, pay for, provide coverage for or refer for abortions, sterilization procedures, certain types of research activities and other procedures and activities that are contrary to the entity’s or individual’s religious or moral beliefs. Pursuant to the Conscience Rule as it currently stands, recipients of federal funds also are required to certify their compliance in writing, though the various HHS components distributing funds subject to the rule have been given until October 1, 2009, to phase in implementation of the certification requirement.

Many argue that the Conscience Rule may be unnecessary in light of the existing statutes. In addition, the Conscience Rule could reduce access to healthcare services, and it may conflict with existing state laws regarding mandated access to certain healthcare services, drugs and procedures. In the commentary to the final rule, HHS countered such arguments by stating, “the rule seeks to achieve not only greater awareness of provider conscience rights, but also a more consistent understanding of the scope of these rights (and the corresponding obligations), greater ease of administration, provision of a Departmental point of contact for complaints regarding violations of the statutes and this regulation, a uniform mechanism for investigating complaints of noncompliance and, as a result, greater compliance with the laws protecting these rights.” 73 Fed. Reg. 78078 (Dec. 19, 2008).

Proposing to rescind the Conscience Rule in its entirety, HHS specifically requests public comment on the following issues: (1) “the scope and nature of the problems giving rise to the need for federal rulemaking and how the [Conscience Rule] would resolve those problems;” (2) whether the Conscience Rule “reduces access to information and health care services, particularly by low-income women;” (3) whether the Conscience Rule ”provides sufficient clarity to minimize the potential for harm resulting from any ambiguity and confusion that may exist because of the rule;” and (4) ”whether the objectives of the [Conscience Rule] might also be accomplished through non-regulatory means, such as outreach and education.” 74 Fed. Reg. 10210 (Mar. 10, 2009). Industry stakeholders may submit comments to HHS on the proposed rule up to and through April 9, 2009.

For more information, please contact Emily E. Williams, or 216.861.7373.

RESTRICTIONS LIFTED ON FEDERAL FUNDING OF HUMAN EMBRYONIC STEM CELL RESEARCH

President Obama moved quickly to reverse the Bush Presidential statement of August 9, 2001, and the Executive Order signed by former President Bush on June 20, 2007, that limited federal funding of human embryonic stem cell research. Prior to the President’s Executive Order issued on March 9, 2009, the National Institutes of Health (NIH) only could fund human embryonic stem cell research on cell lines created before August 9, 2001. The issuance of the Executive Order is part of the President’s initiative to increase scientific integrity in the administration’s involvement with science and technology.

The Executive Order calls for the Director of NIH to establish guidelines for the ”support and conduct of responsible, scientifically worthy human stem cell research, including human embryonic stem cell research, to the extent permitted by law.” The Director of NIH is instructed to review existing NIH and other widely recognized guidelines and to issue new guidelines within 120 days of the issuance of the Executive Order. The economic stimulus package granted the NIH $10 billion, a portion of which now could fund stem cell research. See the February 19, 2009, issue of the Health Law Update.

The Executive Order presents an opportunity for increased oversight, regulation and legislation concerning human stem cell research and almost certainly will lead to a congressional overhaul of existing federal policy.

For more information, please contact Susan Feigin Harris, or 713.646.1307, or Kati L. Freeman, at or 713.646.1364.

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