Health Law Update - April 7, 2017

Alerts / April 7, 2017

Welcome to this week's edition of the Health Law Update. In this Issue:

Capitol Hill Healthcare Update

By Mike Ferguson, Christian Jones, Adam Higgins and Tyler Thompson

GOP Struggles To Revive Health Bill

House Republicans of all ideological stripes say they are committed to rekindling interest in the American Health Care Act (AHCA), but while the interest is real, so too are the policy and political divisions that thwarted passage of the bill last month.

When House Speaker Paul Ryan and other GOP leaders said intra-party discussions would continue with the hopes of reaching consensus and a possible vote on the AHCA, it wasn’t happy talk. Rank-and-file Republicans say keeping the Affordable Care Act (ACA) in place presents at least as many political problems as the party’s effort to repeal it. For example, failing to repeal the $1 trillion in ACA taxes significantly complicates the GOP’s goal of enacting sweeping tax reform later this year.

The House won’t reconsider the AHCA legislation this week before lawmakers adjourn for a two-week recess. Even after Congress reconvenes April 25, immediate budget deadlines that threaten a potential government shutdown will likely be lawmakers’ top priority.

If there’s a window to reconsider the AHCA, it’s likely in May. But it’s a narrow window.

The Republicans’ process to repeal the ACA includes using a procedural tool known as budget reconciliation, which shields the bill from a Senate filibuster. Without that shield, Republicans would be forced to persuade at least eight Senate Democrats to vote with them – a political non-starter.

But the reconciliation legislation that the GOP is using to partially repeal and replace the ACA has a half-life. It will expire when Congress begins drafting the fiscal 2018 budget blueprint, which will likely be sometime in May. So if Republicans want to resurrect the AHCA and avoid the need for bipartisan votes in the Senate, they will have to vote on the bill within the next several weeks.

Still, despite the positive statements by Ryan and other Republicans, the intra-party squabbles that derailed the bill remain – and show no signs of abating. President Trump’s recent Twitter attacks against the conservative leaders of the Freedom Caucus did little other than harden their opposition. Trump has talked about trying to create a coalition of moderate Democrats and Republicans to pass an ACA repeal bill. But the policy concessions needed to attract Democrats would likely repel just as many Republicans.

Ten days after Republicans’ remarkable decision to cancel the House vote on the AHCA, their healthcare legislation isn’t dead, but it is on life-support.

FDA Would Mostly Grind To A Halt Under Shutdown

The last time the government closed because of budget brinkmanship in Washington, the FDA and many other federal health agencies were virtually shuttered and thousands of employees were furloughed. Congress is scheduled to be in session for only eight days this month before facing an April 28 deadline to approve new spending or risk a government shutdown. While GOP leaders on Capitol Hill are adamant that they won’t let the government close, some Republican lawmakers are warning that the intra-party feuding over funding for the Pentagon, Planned Parenthood and the Affordable Care Act makes the risk of a shutdown real.

During the last shutdown four years ago, nearly half of the FDA’s 14,000 employees were furloughed. Although critical functions like high-risk recalls and the monitoring of adverse-event reporting continued, most FDA functions were shuttered, including inspections, monitoring and enforcement. FDA programs funded by user fees weren’t totally immune during the last shutdown. Advisory committee meetings were postponed, and some drug and medical device manufacturers saw delays in approvals, although reviews continued. But the FDA didn’t accept any new drug or device applications during the 2013 shutdown.

The Trump administration has latitude to determine which agency and personnel are deemed critical and will stay operational even if the government is closed. But industry stakeholders with planned advisory committees or scheduled agency interactions could face disruption and delays during a shutdown.

Senate Panel Considered Gottlieb This Week

The Senate Health, Education, Labor and Pensions (HELP) Committee considered Dr. Scott Gottlieb’s nomination to be the FDA commissioner on Wednesday.

The committee’s chairman, Sen. Lamar Alexander (R-Tenn.), pronounced Gottlieb “well-qualified” during a one-on-one meeting last month. Gottlieb has held a series of positions within FDA, including deputy commissioner, and has served at the Centers for Medicare & Medicare Services (CMS).

But the top Democrat on the panel, Sen. Patty Murray (D-Wash.), said she is “deeply concerned” that Gottlieb is too close to the industries the FDA regulates. Gottlieb served as a consultant and board member to several pharmaceutical manufacturers, and he also announced he would recuse himself from agency considerations affecting 20 companies.

Alexander announced that a full Senate vote on Dr. Gottlieb’s nomination will likely occur later this month after the Senate returns from a two-week recess.

Dems’ Bills Take Aim At Drug Manufacturers

Nearly two dozen House and Senate Democrats introduced sweeping legislation last week that directly confronts the pharmaceutical industry in the battle over prescription drug costs. The Democrat-only bills, introduced separately in the House and Senate, include virtually every adverse provision ever proposed against the drug industry, including:

  • Allowing Medicare to negotiate drug prices
  • Extending Medicaid rebates to Medicare beneficiaries
  • Importing prescription drugs from other countries
  • Lowering exclusivity for biologics from 12 years to seven years
  • Applying an excise tax on companies that raise drug prices more than medical inflation
  • Shrinking exclusivities so the FDA can accept generic applications after three years instead of five years
  • Preventing manufacturers from deducting the cost of consumer advertising
  • Requiring companies to disclose research, manufacturing and marketing costs

Led by Sen. Al Franken (D-Minn.), the far-reaching legislation attracted support from other senators, including Bernie Sanders (I-Vt.), Elizabeth Warren (D-Mass.), Kirsten Gillibrand (D-N.Y.), Dick Durbin (D-Ill.), Richard Blumenthal (D-Conn.) and Cory Booker (D-N.J.). The Senate bill – a companion bill was introduced in the House – also was endorsed by 15 public-sector unions and consumer groups.

It’s unlikely the House and Senate bills will gain traction in the Republican-controlled Congress, where GOP lawmakers have long opposed nearly every provision in the legislation. Still, the Democrats hope to piggy-back on mounting attention over prescription drug prices and even President Trump’s statements against the industry. The White House hasn’t announced a specific plan to reduce drug prices or endorsed any legislative efforts, including Franken’s.

Senate Bill Seeks To Improve Local Coverage Determination Process

Bipartisan legislation introduced in the Senate aims to provide transparency and predictability to the local coverage determination process used by Medicare Administrative Contractors (MACs). Industry and congressional critics have long complained that the contractors’ use of the process lacks transparency and meaningful stakeholder input. That process also is not defined in statute, leaving the contractors with latitude to set their own guidelines in 10 regions across the country. Introduced by Sens. Johnny Isakson (R-Ga.), Thomas Carper (D-Del.), Debbie Stabenow (D-Maine) and John Boozman (R-Ark.), the bill would require open and public MAC meetings, disclosure by MACs of the rationale for local coverage decisions, and providing the industry with a meaningful reconsideration process for decisions. Similar legislation was introduced in the last Congress, but it didn’t pass.

Senate Panel Holds User Fee Hearing

The Senate HELP Committee on Tuesday held its second hearing on FDA user fees, featuring witnesses representing medical device, biotechnology and generic drug manufacturers. Witnesses included Kay Holcombe of BIO, David Gaugh of Association for Accessible Medicines (formerly GPhA), Scott Whitaker of AdvaMed, and Cynthia Bens of the Alliance for Aging Research. The FDA’s current user fee agreements expire September 30, and Congress is reviewing the several industry deals with the agency.

Key Appropriator Nixes Trump’s NIH Cuts

The chairman of the House appropriations panel that funds federal health programs and agencies rejected President Trump’s proposed spending cuts for the National Institutes of Health (NIH). Rep. Tom Cole (R-Okla.) reiterated his support for NIH funding during a subcommittee hearing last week with HHS Secretary Tom Price, who faced bipartisan criticism over the president’s proposed cuts. The White House wants to reduce NIH spending by $5.8 billion, a cut of about 20 percent. Price said Trump wants to reduce NIH’s spending only on administration, not on research and grant funding. NIH has enjoyed long-standing bipartisan support in Congress, and lawmakers in December boosted NIH funding by $4.8 billion.

Healthcare Cybersecurity Focus Of Hearing

The House Energy and Commerce Subcommittee on Oversight and Investigations held a hearing Tuesday on how government and industry can better partner to enhance healthcare cybersecurity. Witnesses included Denise Anderson of the National Health Information Sharing and Analysis Center, Michael McNeil of Royal Philips, and Terry Rice, the chief information security officer at Merck. The subcommittee’s chairman, Rep. Tim Murphy (R-Pa.), said efforts to bolster cybersecurity in the healthcare sector have been “sporadic and largely ineffective.”

The hearing addressed ways to strengthen the National Health Information Sharing and Analysis Center and the Healthcare and Public Health Sector Coordinating Council. The lawmakers also reviewed HHS’s role as a so-called Sector-Specific Agency, which charges the department with providing support and guidance to industry stakeholders and implementing government-wide cybersecurity initiatives and strategies.

Bundled Payments Out in the Cold? Another Delay for Mandatory Bundled Payment Models

This most recent delay raises questions concerning how the Trump administration intends to implement value-based payment in the Medicare program.

By Kristen McDermott Woodrum and Katy Appleby

The Centers for Medicare and Medicaid Services (CMS) has delayed again the implementation date of its final rule mandating hospital participation in two new cardiac episode-based payment models (EPMs) and an expansion of the Comprehensive Care for Joint Replacement (CCJR) program that began in April 2016 (EPM rule). This most recent delay, published in an interim final rule on March 21, 2017, comes on the heels of a February rule in which CMS addressed the impact of the Trump administration’s regulatory freeze and postponed the effective date of many EPM rule provisions until March 2017.

To that end, CMS has now pushed back the effective date of the EPM rule to May 20, 2017, and further delayed the applicability date of the EPM regulations and conforming changes to the CCJR provisions from July 1 to October 1, 2017. Hinting that another postponement might be forthcoming, CMS is also seeking public comment on delaying the applicability date until January 1, 2018. Emphasizing the agency’s commitment to “providing some period of time between establishing the final model parameters and beginning the model,” CMS is seeking to ensure that “participants have a clear understanding of the governing rules” prior to the EPM rule’s ultimate effective date.

This most recent delay raises questions concerning how the Trump administration intends to implement value-based payment in the Medicare program. It could also signal the end of mandatory payment models under the current administration now that Dr. Tom Price, a vocal opponent of mandatory bundles, helms the U.S. Department of Health and Human Services. And while the future of bundled payments remains uncertain, we can be sure that this isn’t the last word from CMS on the topic.

Electronic Signature Pads: I Didn’t See Those Terms

By Robert M. Wolin

Although we healthcare lawyers generally view ourselves as a pretty healthy lot, there are times when we are patients too. In a recent experience I was asked by a provider’s employee to sign several registration and privacy documents using an electronic signature pad that captured only my signature. The signature pad provided none of the documents’ terms and conditions and I was not provided a copy of the materials, either before or after signing. Assume for purposes of this article that I was familiar with the documents and their terms and did not agree to any unknown terms – but I wondered whether such terms would be enforceable.

Enforcement of Consumer Agreements – General Overview

Courts have historically enforced the terms of consumer agreements where the consumer had actual notice of an agreement or was required to affirmatively acknowledge the agreement before proceeding with use of the product or service. However, courts have been less willing to enforce agreements where there is no evidence that the consumer had actual knowledge or that a reasonably prudent user would have been on notice to inquire about the terms of the agreement. Consumer arguments that they should not be bound to the terms of an agreement because it was signed on a signature pad rather than a written document have been rejected. See Blocker v. Wells Fargo Bank, No. CV 08-1196-PK (D. Ore. March 30, 2011).

In a case challenging Best Buy’s practices, where the electronic signature pad contained verbiage describing the transaction’s terms above the consumer’s signature, the court stated that:

Parties … have a duty to read what they sign. … (“In general, individuals are charged with knowledge of the contents of documents they sign – that is, they have ‘constructive knowledge’ of those contents.’ … (As a result of [the duty to read the contract,] a person who signs a written contract is bound by its terms regardless of his or her failure to read and understand its terms.”)). Plaintiffs cannot argue that they did not read the electronic signature pads when they signed their names; they are bound by what they signed.

McCracken v. Best Buy Stores, L.P., 248 F.R.D. 162, 167 (S.D.N.Y. 2008).

In a case involving H&R Block, the court held a contract to be enforceable, even if the consumer didn’t read the agreement, where (1) the software required the clients using an electronic signature pad and stylus to navigate through the entire document before they could tap a button confirming their agreement to apply their signatures to the document, and (2) the client controlled the signature pad and navigated through the documents. In Re: H&R Block IRS Form 8863 Litigation, MDL No. 2474/Case No. 4:13-MD-02474-FJG (W.D. Mo. 2014).

However, a few cases addressing the validity of documents executed on an electronic signature pad have questioned or held such documents unenforceable. For example, in a case involving an insurance policy, a Louisiana court prohibited the insurer from voiding the policy because the insurer could not show that the insured was aware of false statements contained in the insurance application. The insurer’s agent had the insured sign an application that contained false information using an electronic signature pad without presenting the application to the insured for review. Because of the signature capture process, the court found that the insurer could not prove that the insured made material misrepresentations with the intent to deceive, as the representations were not reflected on the signature pad.

In a recent case, the court refused to grant summary judgment upholding a bank’s contractual limitation of a liability provision contained in an account agreement that was incorporated by reference into documents signed with a signature pad. The bank was unable to prove that it provided the customer with the full terms of the incorporated account agreement or that the signature pad used by the customer to execute the various agreements contained any language advising the customer of the relevant terms or putting the customer on inquiry notice of the incorporated account agreement’s terms. The customer did not recall receiving the account agreement nor did they execute any agreement expressly acknowledging receipt of the account agreement. Accadia Site Contracting, Inc. v. Northwest Savings Bank, No. 1:14-cv-341 (W.D.N.Y. 2017). Further, the case suggests that delivering documents after signature pad execution may be insufficient if the documents do not require an affirmative acknowledgement of receipt.

Adequate Notice

In addition to the signature pad cases, there are similar cases holding that website terms and conditions are unenforceable where the consumer did not have adequate notice of the terms and conditions. See e.g., Nguyen v. Barnes & Noble, 763 F.3d.1171 (9th Cir. 2014) (link to terms and conditions on a website not sufficiently conspicuous to provide constructive notice of applicable terms and conditions). To that end, the court in Berkson v. Gogo LLC provided a useful four-part inquiry to analyze electronic contracts of adhesion:

  1. Is there substantial evidence … that the user was aware that she was binding herself to more than an offer of services or goods in exchange for money? If not, the “terms of use,” such as those dealing with venue and arbitration, should not be enforced against the purchaser.
  2. Did the design and content of the [customer interface] make the “terms of use” (i.e., the contract details) readily and obviously available to the user? If not, the “terms of use,” such as those dealing with venue and arbitration, should not be enforced against the purchaser.
  3. Was the importance of the details of the contract obscured or minimized by the physical manifestation of assent expected of a consumer seeking to purchase or subscribe to a service or product? If yes, then the “terms of use,” such as those dealing with venue and arbitration, should not be enforced against the purchaser.
  4. Did the merchant clearly draw the consumer’s attention to material terms that would alter what a reasonable consumer would understand to be her default rights when initiating an online consumer transaction from the consumer’s state of residence: The right to (a) not have a payment source charged without notice (i.e., automatic payment renewal); (b) bring a civil consumer protection action under the law of her state of residence and in the courts in her state of residence; and (c) participate in a class or collective action? If not, then (a), (b) or (c) should not be enforced against the consumer.

97 F.Supp. 3d 359, 402 (E.D.N.Y. 2015).

What Healthcare Providers Can Do

To help ensure the validity of signature pad executions, healthcare providers should make sure that their patients are presented with the document and its terms and conditions. Providers should also consider having their patients click on an “I agree” or similar box, in addition to their electronic signatures. Further, it is important that providers are able to associate a patient’s electronic signature with the corresponding agreement presented to the patient. Finally, providers should be sure that their electronic signature procedures comply with applicable healthcare regulatory requirements such as ensuring that a patient is given a copy of the agreement where required.

OSHA’s Top 10 Hits: The Most Common Citations

Nearly 600,000 recordable cases occurred in the healthcare industry last year.

By Daniel Birnbaum

Each year, the Occupational Safety and Health Administration (OSHA) releases a list of the 10 most frequently cited safety and health violations, and not surprisingly, the list has hardly changed from previous years. More than 4,500 workers lost their lives and approximately three million were injured in fiscal year 2016. Moreover, the likelihood of injury or illness is higher in healthcare than in industries thought to be more hazardous, like construction and manufacturing, according to the Bureau of Labor Statistics. Healthcare employers that take a proactive approach to worker safety education and training are well-positioned to minimize the likelihood of injury in the workplace. Read more >>

Blog Exclusives

The following are recent postings to the Health Law Update blog on the latest healthcare industry news and developments.

Capitol Hill Healthcare Update

BakerHostetler’s “Capitol Hill Healthcare Update” is distributed weekly when Congress is in session.

By Mike Ferguson, Christian Jones, Adam Higgins and Tyler Thompson

March 27, 2017

  • AHCA Autopsy: What Happened, What’s Next?
  • Price to Testify on Trump’s HHS Budget
  • Alexander Praises Gottlieb After Meeting
  • GOP-Led House Panel Probes Drug Prices
  • Draft Bill Would Give FDA Authority Over Lab-Developed Tests
  • House Panel Eyes Medical Device User Fees
  • Sanders, Cummings Demand Company Pricing Details

March 21, 2017

  • House Sets Thursday Vote on ACA Repeal
  • House to Vote On ‘Phase III’ Health Bills
  • Trump’s HHS Budget Faces Bipartisan Opposition on Capitol Hill
  • User Fee Hearings This Week As Industry Opposes Trump Plan
  • Senate Confirms Verma For CMS

March 13, 2017

  • GOP Leaders Face Pushback On New Health Plan
  • Gottlieb’s FDA Selection Wins GOP, Stakeholder Praise
  • White House Cautions On Cummings’ Drug-Price Statements
  • Senate Expected To Approve Verma Today

For further information or questions, please contact the authors or any member of the BakerHostetler Federal Policy team.

Destination Medicine: Not Just for the Rich and Famous

OIG okays providing modest hotel and meal accommodations for rural and financially needy patients.

By Katy Appleby and Banee Pachuca

The U.S. Department of Health and Human Services Office of Inspector General (OIG) recently issued an advisory opinion interpreting the finalized rules related to the beneficiary inducement civil monetary penalties (CMP) law. In a previous blog post, we discussed the OIG final rule that codified three exceptions to the definition of remuneration under the beneficiary inducement provision of the CMP law. The OIG advisory opinion approved an arrangement under the “promoting access to care” exception to the CMP law by authorizing a hospital system to provide free or reduced-cost lodging and meals to certain hospital patients, including federal healthcare program beneficiaries. Read more >>

Events Calendar

June 25, 2017

The BakerHostetler Healthcare Industry team is hosting a Cocktail Reception at the American Health Lawyers Association’s Annual Meeting in San Francisco, CA. To RSVP, please click here.

Baker & Hostetler LLP publications are intended to inform our clients and other friends of the firm about current legal developments of general interest. They should not be construed as legal advice, and readers should not act upon the information contained in these publications without professional counsel. The hiring of a lawyer is an important decision that should not be based solely upon advertisements. Before you decide, ask us to send you written information about our qualifications and experience.

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