Health Law Update – February 23, 2017

Alerts / February 23, 2017

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

Reducing the Regulatory Stranglehold on Federally Facilitated Exchanges: Will It Work?

By Susan Feigin Harris

The Centers for Medicare and Medicaid Services (CMS) recently issued a proposed rule aimed at improving the individual and small group markets that have been plagued with instability as issuers continue exiting the Exchanges. While the proposed rule is primarily focused on the Federally-facilitated Exchanges (FFEs), CMS is encouraging state-based Exchanges to adopt similar policies. Whether the proposed rule is the first of many steps in a “repair” scenario advocated by some in the GOP as an alternative to the nullification of the Affordable Care Act (ACA), or merely a curative backstop on the road to a full repeal, providers are likely to experience a further erosion in network participation and in network payment rates.

The overarching intent of the proposed rule is to “provide more flexibility to issuers to help attract healthy consumers to enroll in health insurance coverage, improving the risk pool and bringing stability and certainty to the individual and small group markets.” To that end, the proposed rule attempts to achieve this goal by focusing on several aspects of the FFEs:

  • Shortening the open enrollment periods.
  • Increasing pre-enrollment verification of eligibility for all categories of individual market special enrollment periods.
  • Changing the rules with regard to guaranteed availability by allowing an issuer to apply a premium to past debt owed – designed to remove abuse by purchasers who only paid when they needed the service.
  • Increasing the de minimis variation in actuarial values.

Additionally, and of note for providers, network adequacy provisions were loosened, with more control and flexibility proposed for states in an effort to attract issuers in difficult rural markets. CMS requests comments on the proposed rule by March 7, 2017.

Open enrollment; pre-enrollment verification

In an effort to better align the open enrollment period with Medicare and employer-based coverage, the proposed rule provides for an open enrollment period beginning on November 2, 2017, and ending on December 15, 2017, for plan year 2018. Along with this change, CMS proposes to increase pre-enrollment verification for special enrollment periods in an effort to curb reported abuses during changes in coverage such as adding a new dependent or other changes in life circumstances. Specifically, this provision addresses enrollee misuse of the special enrollment periods for upgrading metal coverage levels during the plan year, a practice that increases the potential for adverse selection and discourages issuers from participating in the marketplace.

Continuous coverage

Additionally, the proposed rule aims to curtail reported abuses associated with the ACA’s continuous coverage provisions, which prevent issuers from denying coverage to applicants irrespective of their past failures to pay premiums or instances where there has been a break in coverage. The continuous coverage provision has drawn criticism from the health insurance industry because it allows individuals to delay signing up for coverage until they are afflicted with an illness or injury. CMS is seeking comments on several proposed continuous coverage requirements with regard to the special enrollment periods, including (1) evidence of prior coverage for six to 12 months, (2) a 90-day waiting period before effectuating enrollment or (3) a late enrollment penalty.

De minimis range in actuarial values

The concept of changing the de minimis range in actuarial values would increase the acceptable ranges that a particular metal level could vary while retaining its category as bronze, gold or platinum. Silver plans were not included in this change.  While this could provide for lower-cost options, it also allows the issuer to offer less coverage in each metal option – a potential concern for beneficiaries who need to understand what they are purchasing and the limits of the coverage being provided.

Network adequacy

The changes proposed to the network adequacy requirements could increase concern for certain providers. This is an area already fraught with controversy as certain “high cost” providers are being terminated from networks across the U.S. The proposed rule would loosen requirements with regard to the need for certain “essential community providers” (ECPs), which include providers serving predominantly low-income and medically underserved individuals, such as those that are described in Section 340B of the Public Health Service Act. In an effort to “lessen the regulatory burden on issuers,” the required percentage of ECPs in a specific network would be reduced from 30 percent to 20 percent in each service area. Additionally, the proposed rule would allow issuers to write in ECPs that are not in the CMS database, and if they cannot satisfy the ECP regulatory standard, to provide a narrative explaining how their networks will provide an adequate level of service for low-income and medically underserved enrollees.

Most notable, however, is the proposal to delegate determination of network adequacy to the states, which does not bode well for providers that have complained about narrowing networks. Specifically for plan year 2018, CMS proposes “to defer to the States’ reviews in States with the authority that is at least equal to the ‘reasonable access standard’ defined in §156.230 and means to assess issuer network adequacy, regardless of whether the Exchange is a State-based Exchange (SBE) or FFE, and regardless of whether the State performs plan management functions.” This proposal is certain to increase the trend toward narrowly tailored network designs and raises the question of at what point do rare and unique services become inaccessible to those with coverage through the Exchanges.

Improvidently Granted Appeal Statistically Yields Sampling Uncertainty

By Robert M. Wolin

The Fourth Circuit Court of Appeals agreed in 2015 to hear an interlocutory appeal of a district court’s decision to prohibit a qui tam relator from using statistical sampling to prove liability and damages in a False Claims Act (FCA) case involving Agape Senior Community, Inc. and its affiliates. The Agape case involved more than 10,000 patients and more than 50,000 claims. The relators estimated that reviewing each patient’s chart to prove liability and damages would potentially cost up to $36 million. The government, through statistical sampling, estimated Agape’s liability to be $25 million. The Fourth Circuit would have been the first circuit court to consider the use of statistical sampling to prove liability and damages in an FCA case. The case was being widely watched for its potential impact on the ability of the government and relators to prove large Medicare FCA cases and defendants’ ability to fight the allegations, winning the battle but losing the war as a result of the costs involved.

However, the Fourth Circuit dismissed the statistical sampling portion of the Agape interlocutory appeal as improvidently granted because the relator’s appeal did not present a pure question of law for review. As the relator’s brief stated, “[t]he true question for the District Court is not whether statistical sampling and extrapolation, in and of itself, is appropriate…. Rather … the issue is whether [the relators’] proposed ‘statistical sampling [was] conducted in a scientifically proven and accepted manner’…. Thus, the relators’ appeal raise[d] the question of whether the district court may, in its discretion allow the relators to use statistical sampling to prove their case.”

The Agape case also highlights the difficult and daunting choices facing relators in cases involving large numbers of patients and claims. In this case, the relators and Agape entered mediation with the government in late 2014 but could not reach a settlement. Agape and the relators mediated again in January 2015 and reached a proposed settlement. The government, however, objected to the settlement as it was “appreciably less than $25 million, the Government’s estimate of total damages…”

Following the lead of the Fifth and Sixth Circuits, the Fourth Circuit upheld the government’s “unreviewable right” to veto the relator’s proposed settlement of FCA causes of action against Agape, despite the fact that it had not intervened in the case. The district court aptly noted the “unique dilemma” that the relators faced – the government objected to the settlement reached by the relators and Agape based on statistical sampling that the district court precluded the relators from using. In light of the costs of proving the case, the district court noted that a compelling case could be made that the government’s position was not reasonable. It is going to be interesting to watch this case to see whether the relators are willing to continue prosecuting the case and if so, how they meet their evidentiary burdens.

Despite the preclusion of statistical evidence in this case, providers should be aware that courts have long admitted sampling and statistical data to support damages calculations in appropriate FCA cases and, in the last few years, have increasingly allowed such data to be used to establish FCA liability where “the defendants’ conduct caused the submission of more false claims and records than could reasonably be tried before a court on a claim by claim basis.”

Bundles, MACRA and the Trump Regulatory Freeze

By Kristen McDermott Woodrum

In the final months of the Obama administration, CMS released rules of significant import to healthcare providers, including a final rule explaining how the Quality Payment Program mandated by the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA) will work and a final rule (Final EPM Rule) that implements two new cardiac bundled payment models and makes changes to the Comprehensive Care for Joint Replacement (CJR) program that began in April 2016. While the long-term future of MACRA and the bundled payment models is uncertain under the Trump administration, especially now that critic Tom Price has been confirmed as the secretary of the U.S. Department of Health and Human Services, CMS provided clarity in a February 17 final rule on how the Trump regulatory freeze will impact the near term.

On Trump’s inauguration day, his Chief of Staff issued a memorandum instructing agencies to postpone pending rules and delay for 60 days published rules that had not yet taken effect. In its February 17 rule, CMS delayed the effective date of the Final EPM Rule to March 21, 2017. This change does not impact the July 1 implementation date for the cardiac bundles introduced by the Final EPM Rule or the expansion of CJR to additional care episodes. But it does delay the new CJR Track 1 –  (CEHRT).

CMS created this track of CJR, which requires the use of certified electronic health records technology and more than nominal financial risk, to qualify as an Advanced Alternative Payment Model (AAPM) under MACRA’s Quality Payment Program. This delay will make it harder for CJR clinicians to meet the payment and patient thresholds required to be an AAPM-qualified provider in the 2017 performance year and achieve the associated 5 percent bonus. Such clinicians would default to the Merit-based Incentive Payment System, but could take advantage of the reduced reporting requirements applicable in the 2017 transition year.

Capitol Hill Healthcare Update

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

GOP still adrift on ACA repeal-replace plans

Meeting privately with Senate Republicans to discuss next steps on the ACA was among the first actions taken last week by the new Secretary of the U.S. Department of Health and Human Services Tom Price. But GOP senators left the meeting disappointed that President Trump’s point man on healthcare didn’t offer a detailed plan on how to either repeal or replace the law.  Also last week, on the other side of the Capitol, House committee leaders held a closed-door meeting with restless rank-and-file Republicans. Energy and Commerce Committee Chairman Greg Walden (R-Ore.) and Ways and Means Committee Chairman Kevin Brady (R-Texas) sketched an outline for replacing the ACA, offered a menu of policy options to replace it, and distributed a 19-page issue backgrounder and talking points for GOP lawmakers.

But underscoring Republicans’ disunity over how to end a law they have singularly campaigned against for six years, several GOP lawmakers publicly dismissed the House outline to replace the ACA. Sen. Rand Paul (R-Ky.) called it “Obamacare lite.” Sen. Bill Cassidy (R-La.), himself a physician, said the House effort could leave more people uninsured than under the existing law. A separate proposal floated by Brady during the meeting – allowing Americans who lack insurance to buy coverage with refundable tax credits – drew fire from other conservatives who oppose tax credits that exceed what taxpayers owe to the IRS.

Republican leaders’ challenge is multi-dimensional: Work with an unpredictable White House to repeal the ACA and replace it with policies that can win majority support in Congress – and in some cases a super-majority in the Senate – all while avoiding the political pitfalls of taking away health coverage for more than 20 million Americans. One example of the policy and political problem facing GOP leaders is Medicaid. Some conservatives in Congress want to immediately dial back federal subsidies for states that expanded Medicaid. But those include 16 states led by Republican governors, most of whom have warned Congress that repealing coverage without a seamless transition to new coverage would burden millions of families and states’ budgets.

House Speaker Paul Ryan (R-Wis.) said Republicans would introduce ACA repeal legislation later this month when Congress reconvenes after the Presidents Day recess. Key staff have been working for weeks compiling policy options, including negotiating with the Senate parliamentarian on what ACA replace language could qualify to be included in the filibuster-proof reconciliation bill. Staff also have been working with the Congressional Budget Office, which calculates how legislation impacts federal spending and deficits.

The next inflection point could be February 28, when Trump makes a primetime address to a joint session of Congress. Republicans don’t know what Trump will say, but its clear Congress needs presidential leadership for lawmakers to coalesce around a policy and path forward.

Republicans plan to go it alone on ACA replace

After last year’s surprising election results gave Republicans control of Washington, GOP leaders predicted that once they repealed the ACA, Democrats would partner with them to design replacement provisions. GOP leaders in particular were targeting the 10 Senate Democrats running for re-election next year in states that President Trump won. Those senators would likely be looking for opportunities to burnish their bipartisan credentials, and Republicans would need them to stop Senate filibusters.

However, last week, Senate Majority Leader Mitch McConnell (R-KY) acknowledged what’s been long known: Republicans aren’t counting on any Democratic cooperation for ACA replacement plans. McConnell, when asked by reporters, declined to say how Republicans intend now to attract the Democrats they need to meet the 60-vote threshold to advance legislation in the Senate.

Few bumps for Verma in confirmation hearing

Seema Verma, President Trump’s nominee to lead CMS, emerged from her Senate Finance Committee hearing last week largely unscathed and poised for likely confirmation next month. Republicans praised the former healthcare consultant who oversaw Indiana’s Medicaid expansion under the ACA. Democrats pressed her on GOP-driven changes to Medicare and Medicaid as well as her position on drug prices, and some Democrats said she failed to adequately address their questions.

Verma said she opposed transforming Medicare into a voucher program but did support giving seniors more choices while also seeking to bolster Medicare’s sustainability. She demurred on questions about whether to allow Medicare to negotiate with pharmaceutical manufacturers over drug costs – a position advocated by Trump – or requiring drug companies to pay drug rebates to Medicare for so-called dual-eligibles.

Committee Chairman Orrin Hatch (R-Utah) asked about testing different payment models within Medicare. Verma said that while it’s important to test new ideas, it’s equally important that patients and providers aren’t mandated to participate in what she called “experiments.”

Senators reintroduce bill to coordinate kids’ care

Bipartisan legislation reintroduced in the Senate last week aims to improve health outcomes by coordinating care under Medicaid for children with complex medical conditions. Led by Sens. Charles Grassley (R-Iowa) and Michael Bennet (D-Colo.), the legislation would allow states to participate in national children’s hospital networks, effectively allowing kids living in one state to be treated by pediatric providers in other states. The bill wouldn’t mandate that states participate but would allow them to opt-in to the networks, which could coordinate services among home, primary, ambulatory, acute and post-acute care providers. A version of the legislation was introduced in Congress last year and gained significant bipartisan support in both the House and Senate. Advocates this year hope Congress’ focus on changes to Medicaid and reauthorization of the Children’s Health Insurance Program could spur passage of the bill, known as the ACE Kids Act.

Senate bill would update FDA device inspections

Bipartisan legislation introduced in the Senate seeks to streamline FDA inspections of medical device manufacturers by creating a more transparent and predictable system. Introduced by Sens. Johnny Isakson (R-Ga.) and Michael Bennet (D-Colo.), the bill calls on the FDA to establish uniform processes and standards for inspecting domestic and foreign device facilities. The legislation won support from AdvaMed, the medical device industry trade group, which said the legislation would modernize the FDA’s inspections process by applying a risk-based approach and allowing the agency to target limited resources on facilities that have the most potential to impact public health.

Bipartisan bill targets Part D transparency

New Senate legislation would prohibit Medicare Part D plans and pharmacy benefit managers from retroactively reducing payments on accurate reimbursement claims submitted by pharmacies. Introduced by Sens. Shelley Moore Capito (R-W.Va.) and Jon Tester (D-Mont.), the legislation aims to benefit community pharmacies by blocking direct and indirect remuneration fees charged by pharmacy benefit managers. Pharmacy benefit managers have come under criticism for increasing those fees, while they say the fees paid by pharmacists help to hold down costs for consumers. Companion legislation also was introduced in the House by Reps. Morgan Griffith (R-Va.) and Peter Welch (D-Vt.).

FDA Publishes Guidance on Off-Label Use Communications

By Elizabeth O’Connell and Lee Rosebush

The U.S. Food and Drug Administration (FDA) recently released two draft guidance documents and a memorandum related to off-label communications and the FDA’s power to regulate such communications. The publications are the FDA’s response to years of conflict between drug makers, which contend they have a first amendment right to communicate off label or information that is not contained on medication labels, and the FDA, which interprets current law to prohibit such communications under misbranding legal theories. This ongoing debate is grounded in the drug industry’s assertion that these communications are protected free speech versus the FDA’s duty to protect public health and well-being, which has arguably been impacted by the recent Amarin settlement.

The memorandum

Historically, the FDA has managed off-label use by regulating corporate marketing, and in the memorandum, the agency asserts its statutory authority to regulate off-label communications, regardless of whether they are truthful, misleading, or false, in order to protect consumers. Included in the memorandum is a section in which the FDA addresses why it has declined to adopt alternative approaches that include eliminating or capping off-label drug uses or communications, stating that these approaches do not “take into account the public health interests behind allowing health care providers and patients to work to determine the best treatment options for each patient in specific circumstances.” Read as a whole, the memorandum reinforces the FDA’s authority to regulate off-label communications while limiting the types of communications and types of speakers being regulated.

The FDA notes throughout the memorandum that it does not prohibit all communications about off-label uses. For example, the presentation of truthful and nonmisleading scientific information about unapproved uses at medical or scientific conferences is acceptable. On the other hand, all communications that are not supported by “objective and scientifically valid evidence” are deemed misleading and are subject to FDA regulation. Further, the FDA can accuse a firm of misbranding when its off-label communications provide evidence that a drug is intended for an off-label use. However, the FDA also notes that the scope of the regulation is narrow and is focused on “firms who actually control the distribution of the products,” not independent healthcare providers and researchers.

Consistent communications draft guidance

The first draft guidance addresses communications that contain information consistent with, but not found on medical labels required by the FDA. The FDA acknowledges that drug manufacturers have an interest in communicating data and information about the approved uses of products that are not contained in the products’ FDA-required labeling. However, the FDA warns that these communications must be truthful, nonmisleading, and grounded in fact and science. To address both of these interests, the FDA has identified three factors indicating that a communication is consistent with a product’s FDA-required labeling:

  • The communication does not make representations or suggestions relating to a different indication or patient population, or that conflict with the limitations and directions on the labeling.
  • The representations or suggestions in the communication do not increase the potential for harm relative to the information in the labeling.
  • The directions for use in the labeling enable the product to be safely and effectively used under the conditions represented/suggested in the communication.

Examples of communications that the FDA would consider to be consistent with labeling include information obtained directly from patients about the effects of a product when used for its approved indication and information about the long-term safety of products that are approved for chronic use.

Payor communications draft guidance

The second guidance addresses the communication of healthcare economic information (HCEI) to payors and similar entities. The FDA acknowledges that payors have an interest in receiving HCEI from drug and device makers about medical products not yet approved by the FDA. In an attempt to clarify the scope of permissible HCEI communications, the guidance states that where HCEI relates to an approved indication and is based on competent and reliable scientific evidence, the FDA will not consider such information to be false or misleading.

HCEI that relates to the disease or condition, manifestation of the disease or condition, or symptoms associated with the disease or condition in the patient population for which the drug is approved is deemed to “relate to an approved indication.” This includes information relating to duration of treatment and dosing. Conversely, HCEI does not relate to an approved indication if it addresses treatment of a disease where the drug is approved only to treat a symptom of the disease, or the information is derived from studies of patients not within the approved patient population. Last, HCEI will meet the standard of deriving from competent and reliable scientific evidence if it has been developed using generally-accepted scientific standards, is appropriate for the information being conveyed and yields accurate and reliable results.

What’s next?

The FDA is soliciting comments on this new guidance until April 19, 2017, while it makes its final determinations. After it has collected all necessary information, the FDA will release its final rules. In addition to the comments received, the final rules may also be shaped by the election of the new FDA commissioner, whom President Trump has not yet nominated.

Events Calendar

March 10, 2017

Atlanta Partner Kristen McDermott Woodrum is presenting “Making Sense of MACRA in the AMC Setting: Adapting to the New Quality Payment Program” at the AHLA Legal Issues Affecting Academic Medical Centers and Other Teaching Institutions Conference in Baltimore, Maryland.

March 11, 2017

Houston Partner Lynn Sessions will present “Domino Effect of Flawed Breach Response” at the 2017 SXSW Conference in Austin, Texas.

March 22, 2017

Cleveland Of Counsel Thomas S. Campanella will moderate a Panel: “Positive Disruptions in the Health Care Market: An Interactive Dialogue” at the North East Ohio Underwriting Association – Annual Expo in Cleveland, Ohio.

April 6, 2017

Houston Partner Donna S. Clark will present a “Stark Law Update” at the UT CLE 2017 Health Law Conference in Houston, Texas.

Houston Partner B. Scott McBride will present “Recent Trends in the False Claims Act and Government Enforcement” at the UT CLE 2017 Health Law Conference in Houston, Texas.

April 7, 2017

Houston Partner Susan Feigin Harris will moderate the panel “The Realities and Future of Payment and Delivery Reform” at the UT CLE 2017 Health Law Conference in Houston, Texas.

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