Health Law Update - June 15 ,2017

Alerts / June 15, 2017

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

Capitol Hill Healthcare Update

BakerHostetler’s “Capitol Hill Healthcare Update” is distributed weekly when Congress is in session. To access previous postings, please see the Health Law Update blog.

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

Senate GOP Still Talking on Health Bill as Clock Ticks

Senate Republicans continue intra-party discussions on changes to House-passed legislation replacing the Affordable Care Act (ACA), but the lack of consensus is threatening GOP leaders’ pledge to have a bill ready for a vote this month.

Led by Senate Majority Leader Mitch McConnell, key Republican senators held a series of meetings last week to gauge policy options. While the discussions were said to have narrowed some differences, senior staff said senators are not close to resolving the thorny issues that have divided conservative and moderate lawmakers.


Ch-Ch-Ch-Ch-Changes: Reporting Requirements for Updating Your CMS Provider Enrollment

With the possibility of significant penalties for improperly reported transactions, it is important to understand how certain changes necessitate specific reporting.

By Charlotte A. Combre and Ernessa B. McKie

Is your organization considering a stock transfer, a merger, a change in control, building a new practice location or updating its board of directors? If these kinds of changes are afoot, it is critical to “turn and face the strain,” making sure that you properly notify the Centers for Medicare & Medicaid Services (CMS) to meet the requirements outlined in the Medicare provider agreement.

There are a variety of transactions that healthcare facilities and practitioners may enter into that could result in either a change of ownership (CHOW) or a change of information (CHOI) to their existing Medicare enrollment information. Because a transaction may start as a CHOI but CMS may ultimately consider it a CHOW, it is important to understand how CMS defines CHOW, CHOI and other changes that require notification to maintain an accurate Medicare enrollment record.

Generally, CMS regulations define a transaction as a CHOW when it involves the removal, addition or substitution of a partner in a partnership; the merger of a provider corporation into another corporation; or the consolidation of two or more corporations that results in the creation of a new corporation. Otherwise, the change is likely a CHOI. Regardless, with many changes to an organization’s structure, there is an obligation to notify CMS to ensure compliance with the provider agreement.

Likewise, similar changes must also be reported to state Medicaid programs. Medicaid programs, in many cases, have shorter timelines. For example, the failure to report changes in ownership to state Medicaid programs can result in the denial of reimbursement and even recoupment of amounts previously paid.

With the possibility of significant penalties for improperly reported transactions, it is important to understand how certain changes necessitate specific reporting. For physicians, nonphysician practitioners, physician organizations and nonphysicians organizations, any change in ownership, adverse legal action or change in practice location must be reported to CMS within 30 days. All other changes to Medicare enrollment must be reported within 90 days. For hospitals and most other suppliers, any change in ownership, change in managerial control, or change in authorized or delegated officials must be reported within 30 days, with all other changes requiring a report within 90 days.

CMS encourages providers to utilize the Provider Enrollment, Chain, and Ownership System (PECOS) to report changes. The two tables below provide a high-level overview of CMS notification expectations outlined in the regulations:

CMS has been under heightened scrutiny by the U.S. Department of Health and Human Services (HHS) Office of Inspector General (OIG) to reinforce the importance of reporting changes of information and changes of ownership. A 2016 OIG report that focused on the vulnerabilities in provider enrollment and ownership in Medicare found that the effective date of many provider changes of ownership fell outside the required 30-day notice to CMS. The HHS Departmental Appeals Board has also upheld enforcement penalties against providers for failure to notify CMS, with punishments ranging from enrollment suspension to fines or termination from the Medicare program for a certain period.

Could these changes impact provider reimbursement? The answer is yes, although it may depend on the nature of the change. In fact, recent CMS guidance clarifies how providers should expect to be reimbursed following a transaction that results in a CHOW. Specifically, new language in the CMS Program Integrity Manual, Chapter 15, states that where the new owner/buyer accepts the old owner/seller’s provider agreement, CMS will continue to pay the old owner/seller until the CMS Regional Office processes the CHOW application. However, after the CHOW application is processed, Medicare Administrative Contractors will only pay the new owner/buyer under the CMS Certification Number. CMS states that it is “the responsibility of the old and new owners to work out between themselves any payment arrangements for claims for services furnished during the CHOW processing period.” If the new owner/buyer chooses to reject the provider agreement, “Medicare will never pay the applicant [buyer] for services” rendered before the new application is approved by CMS.

Change may be difficult, but it happens. Providers must continue to meet the CMS participation agreement requirements to ensure compliance.

Exaggerated Diagnosis Codes and Inadequate Provider Networks: Allegations of Medicare Advantage Fraud Settled for $32.5 Million

By Kevin D. Bradberry

The latest settlement involving Medicare Advantage (MA) organizations highlights not only the government’s continuing enforcement focus on Medicare Part C but also the vulnerabilities inherent in that program. In United States ex rel. Sewell v. Freedom Health, Inc. et al., two Florida-based MA organizations – Freedom Health and Optimum HealthCare – agreed to pay $32.5 million to resolve allegations that they had fraudulently exaggerated diagnosis codes and misrepresented the adequacy of their provider networks.

According to the complaint, internal coding auditors were instructed by Freedom Health and Optimum to review member medical records for “missing” medical conditions that corresponded to high-value diagnosis codes, regardless of whether the condition or treatment had actually occurred. To circumvent the requirement by the Centers for Medicare & Medicaid Services (CMS) that diagnosis codes must be justified by a face-to-face encounter with a physician each year, the physician whistleblower alleged that the defendants directed doctors to schedule unnecessary office visits for the sole purpose of documenting lucrative diagnosis codes for conditions that had been previously suffered by members but were not treated in the past year.

The MA organizations were also alleged to have fraudulently expanded into new geographic service areas by falsely certifying to CMS that they had developed an adequate network of providers in those regions. When the MA organizations submitted to CMS their request for expansion, the list of providers furnished to the agency was not the same as what was published in the provider directories. The MA organizations had omitted from their published network lists the providers who charged high commercial rates which both prevented members from identifying local in-network providers and created significant coverage gaps, according to the complaint.

Although there was no admission of liability, the settlement involves a five-year Corporate Integrity Agreement under which the MA organizations agreed to promptly establish a robust compliance program, provide annual compliance training for employees, retain an independent compliance auditor and establish a disclosure program to facilitate anonymous reporting of complaints. In addition, Freedom Health’s former chief operating officer agreed to personally pay $750,000 to resolve allegations of his role in one of the schemes.

The case is United States ex rel. Sewell v. Freedom Health, Inc. et al, 8:09-cv-1625 (M.D. Fl. May 12, 2017).

Doc, Can You Hear Me Now? Telehealth Finally Comes of Age in Texas

By Robert M. Wolin

After many years of heated and contentious debate, and opposition by the Texas Medical Association and the executive director of the Texas Medical Board, Texas has significantly revised its telemedicine statute to permit the routine provision of telemedicine services addressing litigation brought against the Texas Medical Board and reflecting the changing consensus regarding telemedicine services. Historically the Texas Medical Association objected to physicians providing telemedicine services to a patient the physician does not know or has not seen in person and to physician assistants or advanced practice registered nurses being allowed to provide telemedicine services. Under SB 1107, signed into law on May 27, 2017 by Governor Greg Abbott, Texas physicians and practitioners may now provide health or medical services to a patient at a different physical location using telecommunications or information technology.

The Texas Medical Board had required practitioners to use “advanced telecommunications technology” that allowed the practitioner to see and hear the patient in real time. Under the new legislation, a practitioner must:

  • Use technology that provides synchronous audiovisual interaction between the practitioner and the patient;
  • Use asynchronous store and forward technology including technology that allows telephonic only interaction provided the practitioner uses certain specified clinical information; and
  • Otherwise comply with the applicable standard of care.

The technology requirements are not applicable if the practitioner has a pre-existing practitioner-patient relationship or is providing the telemedicine service pursuant to a call-coverage arrangement. It must, however, be noted that SB 1107 prohibits the use of telemedicine to prescribe an abortifacient or any other drug or device that terminates a pregnancy, such as “Plan B.”

Mental health services are excluded from the telehealth provisions. With this exception, it will be interesting to see whether the applicable regulatory boards will afford tele-mental health services the same flexibility provided for other telehealth services under SB 1107.

The legislation also precludes commercial third-party payers from rejecting telemedicine and telehealth claims solely because the services were provided using telecommunications or information technology. However, the reimbursement protection is inapplicable to services provided by phone (or other audio-only technology) or through visual-only interactions.

The Texas Medicaid program will also reimburse for services provided through telemedicine. Prior approval for the use of telehealth services is generally not required under the Medicaid program.

The standard of care applicable to telehealth and telemedicine services is the same as that which would apply in an in-person setting.

Finally, it must be noted that the Texas Medical Board and other regulatory bodies continue to have a great deal of discretionary authority over regulation of telemedicine and telehealth services. In particular, AB 1107 directs the Texas Medical Board, the Texas Board of Nursing, the Texas Physician Assistant Board and the Texas State Board of Pharmacy to jointly develop rules governing when and how prescriptions can be issued in connection with a telemedicine/telehealth service.

In addition to SB 1107, telehealth services will also be expanded by HB 1697 which established a teleNICU services grant program and SB 922 which assures Medicaid reimbursement for telemedicine/telehealth services provided in educational facilities. In addition, while still awaiting signature by Governor Abbott, SB 1633 enhanced the availability of telepharmacy services by authorizing remote dispensing sites in areas that are medically underserved, areas with a medically underserved population and areas with a health professional shortage.

Branded Biologic Products Lose 180 Days of Patent Exclusivity in Unanimous Decision From Supreme Court

By Lee H. Rosebush and Lindsay P. Holmes

On June 13, 2017, the U.S. Supreme Court issued its opinion in Sandoz v. Amgen. In doing so, it answered two questions raised under the Biologics Price Competition and Innovation Act of 2009 (BPCI). First, is an injunction available under federal law if the biosimilar applicant fails to provide its application and manufacturing information to the manufacturer of the biologic? Second, when does the 180-day notice requirement begin? Both of these questions have serious ramifications for manufacturers, providers and payers moving forward.


BPCI is the biological product counterpart to the Hatch-Waxman Act, which governs the generic drug approval process. BPCI enacted 42 U.S.C., § 262, which governs the biosimilar approval process. Biosimilar biological products that are designated as interchangeable are analogous to generic medications. When a drug is prescribed, a generic is commonly dispensed when available. Generics are usually more cost-effective than brand-name medications. However, as of June 1, 2017, there are only a handful of FDA-approved biosimilar products.

Under BPCI, a biosimilar is defined as a biological product that is “highly similar to the reference product” and has “no clinically meaningful differences between the biological product and the reference product in terms of the safety, purity, and potency of the product.” 42 U.S.C. § 262(i)(2)(A)-(B). However, it should be noted that for payers and providers, there is a difference between a biosimilar and an interchangeable product from a substitution perspective. Specifically, only if the biosimilar is found to be interchangeable, based on the submitted application and testing requirements, may the biosimilar be substituted for the reference product without the intervention of the prescribing healthcare practitioner.

In Sandoz, the case involved Neupogen® (filgrastim) as the biological reference product at issue. Neupogen® is a leukocyte growth factor with an approved indication for use in a variety of patient populations. Neupogen® is typically used in patients to stimulate the body’s production of white blood cells. Amgen has marketed Neupogen® since 1991 and claims to hold patents for its manufacturing and use. Sandoz filed an application with the FDA seeking biosimilar approval for Zarxio®, a filgrastim product, with Neupogen® as the reference product pursuant to 42 U.S.C. § 262.

Prior to receiving FDA approval, Sandoz informed Amgen that it intended to market Zarxio® immediately upon receiving approval. In addition, Sandoz notified Amgen that it declined to provide Sandoz’s application and manufacturing information to Amgen. Amgen sued Sandoz for patent infringement and asserted two claims under California’s unfair competition statute that Sandoz violated federal law – when it did not submit “its application and manufacturing information under 42 U.S.C. § 262(l)(2)(A), and when it provided notice of commercial marketing under 42 U.S.C. § 262(l)(8)(A) before rather than after, the FDA licensed” Zarxio®.

Tuesday’s decision answered the outstanding questions at issue:

Is the requirement under BPCI that a biosimilar applicant provide its application and manufacturing information to the reference product sponsor enforceable by federal injunction?

No. BPCI provides a procedure that biosimilar applicants and reference products must engage in order to permit patent litigation before the biosimilar is marketed. Parties are subject to various consequences if the procedure is not followed. Furthermore, BPCI contains remedies for failure to comply with the procedural requirements. Therefore, the Court held that it is not an act of artificial infringement under 35 U.S.C. § 271(e)(2)(c)(i),(ii) for the applicant to fail to disclose its application and manufacturing information to the sponsor of the reference product. Consequently, there is no provision to enforce by injunction under federal law.

When must the biosimilar applicant notify the reference product sponsor regarding the marketing of a biosimilar?

The plain language of BPCI provides that “[t]he subsection (k)[biosimilar] applicant shall provide notice to the reference product sponsor not later than 180 days before the date of the first commercial marketing of the biological product [biosimilar] licensed under subsection (k).” 42 U.S.C. § 262(l)(8)(A). Subsection (k) describes the licensure process by which biological products are licensed as biosimilar and/or interchangeable biosimilar products.

In Sandoz, Amgen argued that the word “licensed” in the statute means that the biosimilar must be licensed by the FDA before notice may be provided to the sponsor. The Supreme Court disagreed. Specifically, the Court interpreted the statutory language as requiring that the applicant provide the reference product sponsor “notice at least 180 days prior to marketing its biosimilar.” The Court explained that the word “licensed” in the statute simply means that the product must be “licensed” “on the date of first commercial marketing.” In other words, the biosimilar product does not have to be licensed prior to the applicant providing the reference product sponsor notice.

So, what does this really mean and how does it impact your business?

For manufacturers, the Supreme Court’s ruling in Sandoz clarifies the notification requirements applicable to biosimilar applicants. Specifically, the Court has clarified that applicants can notify reference product sponsors before obtaining FDA licensure. In other words, the biosimilar applicant can notify the reference product sponsor of its intention to commercially market a biosimilar while awaiting FDA approval. By doing so, biosimilar applicants can drastically shorten their wait time to market newly FDA-approved products.

For payers and providers, 180 days may not seem like a long period of time. However, when a product has more than a billion dollars of sales in a year, 180 days can mean an impact of $500 million or more on sales. Why does this matter for payers and providers? Because the earlier the competition gets to market, the faster the market typically sees a decrease in pricing. Therefore, the Court’s decision in Sandoz could have a drastic impact on how fast a product gets to market and how fast the market sees a decrease in pricing for these products.

Marc Wagner contributed to this article.

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