Health Law Update – February 9, 2017

Alerts / February 9, 2017

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

  • Capitol Hill Healthcare Update
  • Courts’ Consistent Application of Stevens to State Institutions of Higher Learning
  • Final Rule Expands OIG Exclusion Authority
  • Amendment 7 Stands Its Ground Against the Federal Patient Safety and Quality Improvement Act
  • Our 10 Most Popular Articles of 2016
  • Events Calendar
Capitol Hill Healthcare Update

By: Michael A. Ferguson, Christian B. Jones, Adam J. Higgins and Tyler M. Thompson

GOP leaders delay ACA action amid “repeal,” “repair” debate

House Speaker Paul Ryan last week set a deadline of the end of March for repealing most of the Affordable Care Act (ACA), as other Republican leaders and conservative rank-and-file lawmakers advocated competing policy alternatives for what would follow the health law.

Congressional Republicans had hoped to fast-track ACA repeal by passing legislation repealing most of the law by early February. Although Congress last month authorized the use of filibuster-proof legislation known as budget reconciliation, the GOP has been hampered trying to determine which parts of the ACA can be repealed and what new parts can be included in the reconciliation bill.

Senate HELP Committee Chairman Lamar Alexander (R-Tenn.) continued to propose a methodical approach, saying during a committee hearing last week that he favored “repairing” the ACA and detailing what Republicans would do next before repealing the law.

Senate Finance Committee Chairman Orrin Hatch (R-Utah) last week said he could support efforts to repair the law rather than scrapping it totally and starting from scratch. Hatch, during a speech before the U.S. Chamber of Commerce, also endorsed Speaker Paul Ryan’s (R-Wis.) plan of offering a framework for the GOP’s replacement plan at the same time as the underlying law is repealed, and then debate other replacement provisions separately.

President Trump, during a pre-Super Bowl interview Sunday, also seemed to reset expectations for when Republicans’ full ACA replacement would be implemented. “Maybe it’ll take till some time into next year,” Trump said. “I would like to say by the end of the year, at least the rudiments, but we should have something within the year and the following year.”

While the ACA repair rhetoric is gaining traction among key Republican committee chairmen, it’s politically toxic to House conservatives, who believe it is akin to lawmakers breaking their promise to voters to fully repeal the law. Rep. Mark Meadows (R-N.C.), the leader of the conservative House Freedom Caucus, told reporters last week that the ACA was “unrepairable.”

GOP advances Price’s nomination

With Democrats boycotting and effectively blocking a Senate Finance Committee vote on Rep. Tom Price’s (R-Ga.) nomination to be secretary of the U.S. Department of Health and Human Services (HHS), Republicans suspended the panel’s rules last week and voted to send the nomination to the full Senate.

Finance Committee Chairman Orrin Hatch defended suspending the committee’s rules by saying the panel wouldn’t be held hostage by Democrats’ “political stunt.” Democrats are demanding more information from Price on his investment in an Australian biotechnology manufacturer.

Republicans have the votes in the Senate to approve Price, and Republicans leaders say a vote could come as early as this week but is likely to slip into the following week.

Price’s confirmation is critical to President Trump’s and congressional Republicans’ plans to unwind portions of the ACA that can be affected by HHS regulations. Price also will play a critical role in crafting what policies will be included in the GOP’s plans to replace the health law.

Hatch, Brady: Repeal all ACA taxes now

Congress’ top tax writers left no doubt where they stand on the fate of provider taxes and fees included in the Affordable Care Act – they should be repealed immediately.

While congressional Republicans are still trying to figure out a path forward on what parts of the law to repeal and when, House Ways and Means Chairman Kevin Brady (R-Texas) and Senate Finance Committee Chairman Orrin Hatch said last week that the taxes on pharmaceutical and medical device manufacturers, hospitals, and insurers should be stricken right away.

Hatch, during a speech last week at the U.S. Chamber of Commerce, called for all ACA taxes to be repealed effective as soon as Congress repeals most of the health law using budget reconciliation, likely in March.

Still, some Republicans say the GOP should keep the taxes in place to help finance a transition to a new plan and also to provide revenue for whatever health policy Congress passes to replace the ACA. Brady, in a media interview last week, acknowledged a split among Republicans over the issue, but said, “Personally, I don’t want any more small businesses or patients or medical device makers to suffer under the burden of Obamacare taxes any longer.”

House leader outlines timeline for health bills

House Majority Leader Kevin McCarthy (R-Calif.) last week sketched out the schedule for considering major healthcare legislation, beginning with a vote next month on repealing most of the ACA.

McCarthy, the No. 2 Republican in the House, also said he hoped Congress would complete consideration of pharmaceutical, generic, biologic, and medical device user fees for FDA by the end of June. Although Congress has until Sept. 30 to reauthorize the user fees, the law requires that lay-off notices be sent to FDA employees in August, warning that jobs could be jeopardized if Congress doesn’t meet the deadline.

The House Energy and Commerce Committee is expected to begin hearings on the user fees – starting with the medical device industry’s – in mid-February.

McCarthy pegged July as the target date for renewing the Children’s Health Insurance Program, which also expires September 30.

House panel delays vote on drug pricing bill

House Energy and Commerce Committee Chairman Greg Walden (R-Ore.) said his panel will delay a scheduled vote this week on legislation to lower prescription drug prices by incentivizing generic drug development.

The bipartisan legislation, backed by Reps. Gus Bilirakis (R-Fla.) and Kevin Schrader (D-Ore.), calls on FDA to expedite generic drug applications when drugs are in short supply or when there are limited manufacturers in the market. It’s similar to bipartisan legislation introduced last week in the Senate by Sens. Susan Collins (R-Maine) and Claire McCaskill (D-Mo).

Democrats on the committee asked Walden to delay a vote on the bill. Democrats hope to gain Republican support for adding other provisions to the legislation and also want a more thorough vetting of the bill and the underlying issue.

Walden attended a White House meeting last week with President Trump and pharmaceutical industry executives. Trump previously said the industry was “getting away with murder,” and he vowed to require Medicare to negotiate directly with manufacturers over drug prices. The president backed off that rhetoric in the meeting, and instead focused on the need to consider speeding generic drug applications.

Emerging from the White House meeting, Walden announced his committee would vote on the generic drug pricing bill. Now that the vote has been delayed, the panel’s Subcommittee on Health advanced legislation on Tuesday designed to tighten financial eligibility for Medicaid, including banning state lottery winners from being eligible.

Pascrell praises UDI device proposal

Rep. Bill Pascrell (D-N.J.), one of Congress’ leading voices on unique device identifiers for medical technology, praised a decision last week from the standards committee ASC X-12 that UDIs should be included on insurance claims forms.

Pascrell has previously advocated that Congress enact legislation mandating the change, which he said would allow FDA and others to track defective implantable devices like cardiac stents and artificial hips. Opponents argue the data could be misleading because it wouldn’t take into account the overall condition of the patient, the skill of the surgeon or other unique factors.

The standards committee’s proposal faces a three-month public comment period as well as final approval by HHS and the Centers for Medicare and Medicaid Services. HHS secretary nominee Rep. Tom Price (R-Ga.) previously voiced opposition to efforts by Pascrell; CMS administrator nominee Seema Verma’s position on the issue is not clear.

Both Price and Pascrell are senior members of the House Ways and Means Subcommittee on Health, which has jurisdiction over Medicare Parts A and B as well as CMS.

Courts’ Consistent Application of Stevens to State Institutions of Higher Learning

By: B. Scott McBride and John W. Petrelli

The United States Supreme Court recently declined review of the First Circuit Court of Appeals’ ruling that the University of Massachusetts Medical School was an “arm of the state,” and thus, not subject to the federal False Claims Act (FCA).  U.S. ex rel. Willette v. University of Massachusetts, Worchester, No. 15-1437 (2017).  In declining review, the Supreme Court impliedly acknowledged the “bedrock proposition” that states, including state agencies and state institutions of higher learning, cannot be sued in a private action under the FCA. U.S. ex rel. Willette v. Univ. of Massachusetts, Worchester, 812 F.3d 35 (1st Cir. 2016).

This bedrock proposition was delivered by the Supreme Court in its 2000 opinion in Vermont Agency of Natural Resources v. U.S. ex rel. Stevens, 529 U.S. 765 (2000).   Although the FCA subjects to liability “any person” who submits a false claim to the government “for payment or approval, the statute itself does not define the term ‘person.’” In Stevens, the Supreme Court filled this void and applied the “longstanding interpretive presumption” that “person” does not include the sovereign, including states and “arms of the states.” The ruling in Stevens has since been extended to state institutions of higher learning, and its consistent and continued application has been a significant deterrent to whistleblowers attempting to pursue alleged FCA actions against the states and, of particular importance, against state institutions of higher learning in the medical or healthcare fields.

Another recent example of Stevens’ consistent application was seen when the Western District of Kentucky dismissed an FCA lawsuit against the University of Louisville, the University of Louisville Research Foundation and several university officials.  Although the district court was sympathetic to the relators’ plea that “it would be unfair for the defendants to obtain federal grant money under false pretenses and then fire the plaintiffs for complaining about it, all without the fear of liability,” the court held true to Stevens’ precedent that the FCA does not apply to state agencies or individuals sued in their capacity as university officials.  U.S. ex rel. Brinkley v. Univ. of Louisville, No. 15-cv-180-DJH, 2017, 2017 WL 210244 (W.D. KY Jan. 17, 2017).

Final Rule Expands OIG Exclusion Authority

By: Jeffrey R. Murray, Jr. and Amy Fouts

On January 12, 2017, less than a week before the official transition from one administration to the next, the U.S. Department of Health and Human Services (HHS) Office of Inspector General (OIG) issued a rule finalizing changes to its most potent compliance tool: exclusion authority. The Affordable Care Act (ACA) significantly expanded the OIG’s permissive authority to impose exclusion, a bar on individuals’ and entities’ participation in federal healthcare programs. Despite moderating some initial interpretations of this considerable authority, the final rule broadens the OIG’s exclusion power.

Although the proposed rule envisioned no time limitation on fraudulent wrongdoing as a basis for exclusion, the final rule imposed a 10-year limitation, coordinating it with the federal False Claims Act. The OIG also significantly heightened the loss threshold to be met in order to consider a longer exclusion, from $5,000 to up to $50,000 in some cases. And from an initial proposal that excluded individuals with an ownership interest in excluded entities, even if they left prior to its exclusion, the OIG ultimately decided that exclusion would only apply to such an individual if they were still a part of the entity when it was excluded. The OIG even instituted a new early reinstatement process for excluded individuals who can prove they are no longer a threat to federal healthcare programs. On the other hand, none of these interpretations diminish the fact that the final rule achieves a clear expansion of the scope of the OIG’s permissive exclusion authority. The OIG may now consider exclusion for the obstruction of “audits,” which it does not define, rather than solely for the obstruction of investigations. It may also now consider exclusion for failure to disclose information related to indirect requests for or receipts of federal payments, versus a previous focus only on direct actions.

The fraud and abuse provisions, including exclusion authority, continue to be an effective enforcement tool of the OIG and other agencies tasked with oversight of federal healthcare programs. Hence, we remind our healthcare clients that compliance is an important aspect in responding to any oversight review.

Amendment 7 Stands Its Ground Against the Federal Patient Safety and Quality Improvement Act

By: Jessica Captain Novick

It is well known in Florida that Article X, Section 25 of the Florida Constitution (Amendment 7) provides patients with access to any adverse medical incident report (even involving other patients) created by healthcare providers. This has been an ongoing issue for providers in the state, given that the Federal Patient Safety and Quality Improvement Act (PSQIA) establishes a work product privilege that would otherwise protect access to such reports. Understanding that the PSQIA will not offer the same protections in Florida as elsewhere is particularly critical for healthcare providers acquiring facilities in Florida or those doing business in the state. To that end, healthcare providers should consider seeking legal counsel to address how to properly protect this information in Florida. While Amendment 7 continues to be challenged in the courts it is still being strongly enforced by the state. As discussed below, the Florida Supreme Court recently held that the PSQIA was not created to be a shield for healthcare providers to prevent individuals’ access to information afforded under Amendment 7.

In Charles v. Southern Baptist Hosp. of Fla., Inc., No. SC15-2180, 2017 WL 411333 (Fla. Jan. 31, 2017), plaintiff Jean Charles, Jr. (Charles) initiated a medical malpractice action, as next friend and duly appointed guardian of his sister, Marie Charles, and her minor children. Charles requested from Southern Baptist Hospital of Florida (Hospital) documents related to adverse medical incidents in the Hospital’s history and any physician who worked for the Hospital or arising from care and treatment rendered by the Hospital during the three-year period preceding Marie Charles’ care and treatment through the time of the discovery request. The Hospital produced certain responsive documents including, but not limited to, Code 15 Reports, Annual Reports, and two occurrence reports specific to Marie Charles that were extracted from the Hospital’s patient safety evaluation system before they were reported to the patient safety organization (PSO). However, the Hospital participates in information sharing under the PSQIA and has an established patient safety evaluation system in which it collects, manages, and analyzes such information for reporting to the Hospital’s PSO. As a result, the Hospital (even though responsive) claimed the occurrence reports were not subject to production because they were privileged and confidential under the PSQIA as patient safety work product.

Charles filed a motion in the Circuit Court in Duval County to compel documents the Hospital refused to produce based on the Hospital’s claim of privilege under the PSQIA. Charles argued that the PSQIA protects only documents created solely for the purpose of submission to a PSO, and if it was collected and maintained for another purpose (or a dual purpose), or if the documentation is related to an obligation for the healthcare provider to comply with the law or accrediting or licensing requirements, such documents would not be protected. The circuit court granted Charles’ motion to compel and held that the adverse medical incident reports were not patient safety work product because they are maintained pursuant to the law and/or accrediting or licensing requirements.

On appeal, the First District Court of Appeal, after examining what it termed “the plain language of the PSQIA, concluded that the documents at issue were clearly entitled to protection because such documents met the definition of the patient safety work product under the law. The appeals court further concluded that the PSQIA preempts any discovery right under Amendment 7, because compliance with both federal and state law would be impossible. Charles appealed this decision, and the issue made its way to the Florida Supreme Court. The state’s highest court was tasked with determining (1) whether the records are entitled to protection from discovery under the plain language of the PSQIA and (2) whether the PSQIA preempts Amendment 7 and other provisions of Florida law, as determined by the First District Court of Appeal.

The Florida Supreme Court first looked at whether the plain language of the PSQIA would protect the adverse medical incident records from being produced and concluded that the appeals court incorrectly read the PSQIA and failed to take into account the law’s numerous exceptions and limitations. According to the court, the PSQIA requires providers to create and maintain medical incident reports and Amendment 7 establishes a patient’s constitutional right to access these records. In concluding that the records were ineligible for patient safety work product protection because adverse medical incident reports are maintained separately from the patient safety evaluation system, the Florida Supreme Court held that the records were excepted from the patient safety work definition. Thus, adverse medical incident reports cannot be classified as confidential and privileged patient safety work product under the PSQIA if requested by patients under Amendment 7.

The Florida Supreme Court next addressed whether the First District Court of Appeals had correctly decided the preemption issue and concluded that the records in question did not expressly preempt Amendment 7 because they failed to meet the PSQIA definition of patient safety work product. However, the court stated that implied preemption can still exist even if there is no express preemption. In determining that Congress did not intend to preempt Amendment 7 through the passage of the PSQIA, which creates a voluntary reporting system, the Florida high court held that Amendment 7 did not create implied preemption of the PSQIA. The decision of the First District Court of Appeals was reversed, and the Hospital was required to turn over the adverse medical incident reports to Charles.

Our 10 Most Popular Articles of 2016

As we look into the rearview mirror on 2016 for a final time, we’re reminded of how challenging the year was for the healthcare industry. From making sense of MACRA to determining exactly when the 60-day clock begins, here’s a list of the 10 most popular articles that kept the Health Law Update buzzing in 2016.

  1. The Deeper Dive: Section 1557 Attempts to Return the “Care” to “Healthcare”
  2. Breaking News: 60-Day Overpayment Rule Finalized
  3. ONC Contracting Guide Aims to Restore Balanced Bargaining Between Providers and EHR Vendors
  4. Making Sense of MACRA
  5. Vermont to Require Drug Transparency
  6. More Than the Leaves Are Changing: Clinical Trial Research Regulations and Policies Get a Fall Makeover
  7. The Deeper Dive: The Final Overpayment Rule
  8. Year of the Bundle: CMS Proposes New Mandatory Cardiac Bundles and Expansion of CCJR
  9. Implied Certification and the FCA: Legally False or a False Legality? The Supreme Court Is Set to Decide
  10. Insurer Actions Cut the Heart Out of Out-of-Network Providers
Events Calendar

February 15, 2017

Houston Partner Lynn Sessions will be speaking at the “Healthcare Cyber 101 Event” for the Greater Houston Society for Healthcare Risk Management in Houston, Texas.

February 16, 2017

Houston Partner Susan Feigin Harris will present “The Affordable Care Act Post-Election” at the Alliant 6th Annual Healthcare Education Forum in Houston, Texas.

February 23, 2017

Washington, D.C., Partner Lee Rosebush will be hosting a CLE webinar in conjunction with Lawline on recent developments in pharmacy and pharmaceutical law. The live webcast will cover a wide range of issues, including pharmacist-in-charge liability, compounding law, off-label use, false claims, product liability issues and medical marijuana. For more information and to register, please consult the Lawline website.

February 23-24, 2017

Houston Partner Lynn Sessions will present “Preparing for Your Coming Privacy Breach” at the American Health Lawyers Association’s Long Term Care and the Law Program in San Diego, Calif.

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, Md.

March 11, 2017

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

April 6, 2017

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

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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