Health Law Update – May 19, 2016

Alerts / May 19, 2016

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

  • U.S. House of Representatives v. Burwell: A Failure to Appropriate, Not a Failure in Drafting
  • Differences in Medical Opinions: Not Enough to Prove FCA Liability
  • The Proposed Common Rule: The Tribe Has Spoken, and They Have Concerns (Part 2)
  • CMS Announces Final Rule Updating Fire Safety for Healthcare Facilities
  • Understanding the New Overtime Regulations
  • Key Points of New Federal Legislation: The Defend Trade Secrets Act
  • Biologics and Biosimilars in the U.S. and Europe
  • Events Calendar
U.S. House of Representatives v. Burwell: A Failure to Appropriate, Not a Failure in Drafting

By Susan Feigin Harris

“A most curious and convoluted argument whose mother was undoubtedly necessity,” wrote Judge Rosemary M. Collyer in describing the argument made by the U.S. Department of Health and Human Services (HHS) to uphold the constitutionality of cost-sharing reduction payments to insurers under Section 1402 of the Affordable Care Act (ACA). On May 12, 2016, the U.S. District Court for the District of Columbia issued summary judgment in favor of Congress in U.S. House of Representatives v. Burwell, finding that Section 1402 payments had been made without an appropriation in violation of the U.S. Constitution. The latest in a series of court decisions involving the ACA, Judge Collyer’s ruling offers an interesting review of constitutional law and budgetary policy.

ACA Section 1402 mandates that insurers offering qualified health plans through the Exchanges reduce cost-sharing obligations, such as deductibles, copayments and other charges, for eligible low-income individuals and families. More than half of all Exchange plan enrollees received cost-sharing reductions in 2015. The question presented to the court was whether Congress made an appropriation for payments to insurers for cost-sharing reductions provided by Section 1402.

The Constitution requires that authorization and appropriation by Congress are nonnegotiable prerequisites to government spending. The parties agreed that Congress had in Internal Revenue Code (IRC) Section 1324 made a permanent appropriation for Section 1401 of the ACA, which added a new section 36B to the IRC for the payment of premium assistance tax credits. HHS argued that ACA Section 1402 was “economically and programmatically integrated” with Section 1401 and therefore could be implemented consistent with the express appropriation for Section 1401 of the ACA. The court disagreed.

The court found that Congress had not made an appropriation for the process of making “periodic and timely payments” for the cost-sharing reductions. Denying the connection to Section 1401 for appropriation purposes, the court held that premium tax credits are payable under IRC Section 36B, while the cost-sharing reductions are payable under ACA Section 1402. The court’s opinion is an interesting review of the balance of power set forth in the Constitution and the dangers of the legislative drafting process, especially the manner in which each provision involved Congressional Budget Office (CBO) cost estimate scoring. The court’s finding cites to CBO and Office of Management and Budget (OMB) documents that appear to conflict with HHS’s current argument, acknowledging “that no permanent appropriation was available for Section 1402 reimbursements.”

The judge was unpersuaded by HHS’s arguments attempting, as it did in King v. Burwell, to show the intertwined nature of ACA provisions, in this case the cost-sharing and tax credit provisions. The decision distinguishes the dispute from King, where the U.S. Supreme Court addressed whether the ACA’s tax credits are available to individuals who purchase coverage in states with a federal Exchange. While the controversy in King, dealt with arguments over text and drafting, the dispute in House involves whether payments made under ACA Section 1402 had been effectively authorized by Congress. As the Judge plainly explains “There is nothing in the ACA that prevents compliance. The funds simply must be appropriated.”

The court enjoined any further reimbursements to insurers under Section 1402 until a valid appropriation is in place and it is doubtful a move to pass an “emergency” appropriation will be made during the remainder of the year, given the politics surrounding the lawsuit, the budget and any ACA “fix.” The court did stay its injunction pending any appeal, so we will have to watch for the next chapter in this ACA courtroom drama.

Differences in Medical Opinions: Not Enough to Prove FCA Liability

By B. Scott McBride and Kevin D. Bradberry

In a $200 million False Claims Act (FCA) litigation with certain twists and turns, the U.S. District Court for the Northern District of Alabama recently found that the federal government failed to show that claims submitted to the Medicare program by hospice defendant AseraCare were in fact false. The court held that because the only evidence of falsity was a difference of opinion between a certifying physician on the one hand and a government medical expert on the other, the government could not prevail. The apparent simplicity of the allegations in U.S. ex rel. Paradies v. AseraCare , Inc. belies the unique course the case has taken.

In 2008, several employees brought suit against AseraCare under the FCA, alleging that AseraCare knowingly provided hospice services to patients who were not properly certified as terminally ill under the Medicare program. The federal government intervened in the litigation in 2012. Concluding that statistical sampling was sufficient evidence of falsity, the court permitted the United States to show its damages using a “statistically valid random sample” of 233 claims, evaluating the falsity of that subset and extrapolating those results across the entire claim population. After reviewing the 233 claims, the government alleged that roughly half were false, amounting to an estimated $7 million in actual damages. Once extrapolated, the $7 million ballooned into $67 million, which became $200 million in damages and penalties under the FCA.

Holding that the “jury must first determine whether any claims in the 233 patient sample are false without exposure to prejudicial and confusing evidence related to AseraCare’s general corporate practices that relate most appropriately to whether AseraCare knew it was submitting false claims,” the court divided the trial into two phases. Phase One would determine whether the 233 claims were actually “false.” Phase Two would cover whether AseraCare knew the claims were false.

As part of Phase One, a medical expert for the government who reviewed the patient records testified that 123 of the patient files in the 233 sample did not support hospice eligibility. After a 10-week trial, the jury returned a finding that 104 of the 233 claims were false or unsupported.

Shortly after the Phase One decision, the judge declared that she had “committed reversible error” because she did not fully instruct the jury on what was required to prove falsity. Deciding that the error required a new trial, the judge held that she would inform the next jury that expressions of opinion or scientific judgment about which “reasonable minds may differ” cannot be false within the meaning of the FCA. Or, in other words, “a mere difference of opinion between physicians is not enough to show falsity.” With that in mind, the court then held that unless the government could point to evidence of falsity other than the clinical judgment of the government’s medical expert, the court would grant summary judgment in favor of AseraCare.

On March 31, 2016, the court did exactly that:

When two or more medical experts look at the same medical records and reach different conclusions about whether those medical records support the certifying physicians’ [medical opinion on hospice eligibility], all that exists is a difference of opinion. … The government has failed to point the court to any objective evidence of falsity.

The decision was rooted in the court’s concern for the integrity of the medical profession: “[A]llowing a mere difference of opinion among physicians alone to prove falsity would totally eradicate the clinical judgment required of the certifying physicians.” And the litigation impact would be far-reaching, as “hospice providers would be subject to potential FCA liability any time the government could find a medical expert who disagreed with the certifying physician’s clinical judgment.” This would be especially true as “making medical prognostications of life expectancy is not always exact.” Accordingly, the court granted summary judgment for AseraCare.

In a landscape where the government holds many advantages, the AseraCare case is a source of strength for defendants. AseraCare memorializes what practitioners already know: making healthcare decisions is difficult enough without having to worry whether a government auditor will second-guess a conclusion months or even years after it was made. If the government is to pursue damages and penalties against providers, it must do so on more than a difference in medical opinion. AseraCare also demonstrates how general, anecdotal evidence of falsity must be connected to proof that the sampled claims are indeed false.

The United States has until May 31, 2016, to decide whether it will appeal the decision.

The Proposed Common Rule: The Tribe Has Spoken, and They Have Concerns (Part 2)

An overview of stakeholder comments on proposed revisions to informed consent forms and the posting of informed consent forms within 60 days after closure of enrollment

By Gregory E. Fosheim

On September 28, 2015, the U.S. Department of Health and Human Services (HHS) and 15 other federal agencies issued a notice of proposed rulemaking (NPRM) updating federal policy for the Protection of Human Subjects, more commonly known as the Common Rule. Earlier this month, we summarized stakeholder comments regarding the redefinition of “biospecimen” as a “human subject” and the consent requirements for secondary use of these biospecimens. This update focuses on proposed changes to informed consent forms (ICFs) and the requirement to post ICFs within 60 days after patient enrollment closes.

Proposed Changes to Informed Consent Forms

All comments we reviewed lauded the efforts of HHS to emphasize the importance of concise and conversational ICFs. Many also agreed with the suggestion to reorient ICFs to provide a clear description of the study and its associated risks at the beginning of any document. A number of stakeholders, however, expressed general reservations that adding four new consent elements, by definition, lengthens the ICFs and defeats the intent of the NPRM. To recap, these would include:

  • A statement that identifiers may be removed from patient data and that non-identifiable data may be used for future research studies, or shared with a different investigator, without obtaining the subject’s informed consent for the additional use. § ____.116(a)(9). This would be applicable to all ICFs.
  • A statement that a subject’s biospecimens may be used for commercial profit and to disclose to subjects whether they would share in this profit. §___.116(b)(7).
  • A statement regarding whether and under what conditions clinically relevant results would be disclosed to subjects. §___.116(b)(8).
  • The option for subjects to consent or refuse to consent to future contact seeking additional information or biospecimens or soliciting subjects’ enrollment in future studies. §___.116(b)(9).

Of all the newly-proposed informed consent elements, this last one received the most stakeholder criticism. For example, one commenter recommended clarifying that contact refusal should only apply after completing the current study or researchers may be unable to continue all necessary follow-up assessments. Others contended that the option could limit the ability of researchers and institutional review boards (IRBs) to provide subjects with updated risk information, and could undermine their ability to contact subjects for a future study, or to provide subjects with study results impacting their care. One stakeholder hypothesized a scenario where subjects enrolled in two simultaneous studies could make contrary selections. Which selection controls? Would researchers risk an Office of Human Research Protections complaint if they contacted the patient for clarification?

HHS stated in its discussion of the new ICF elements that the §___.116 introductory text would instruct researchers to “reorient the language [in ICFs] to first provide essential information that a reasonable person would want to know in order to make an informed decision about whether to participate, and to provide an opportunity to discuss that information.” 80 Fed. Reg. at 53970. As a result, revised §___.116 would limit the contents of the ICF only to the regulatory requirements with any other information relegated to an appendix.

Stakeholders generally encouraged better organization and separation of ICFs into required and non-required elements, even if the separation does not shorten the documents. A few commenters included suggestions for revising ICFs that would present information clearly without burying key facts in a long and overly complex document. Recommendations included front-loading the ICF with a summary explanation of the study, duration, risks, benefits, and alternate courses of treatment, followed by the full ICF. Some suggested HHS offer guidance on simplified risk language it considers sufficient and understandable so researchers would not feel the need to provide exhaustive lists. Likewise, others recommended that HHS clarify what the NPRM means by “reasonably foreseeable risks and discomforts” and when the elements found at §___.116(b) were truly required.

Voicing discomfort with a seemingly one-size-fits-all approach to ICFs, some commenters expressed concern that the NPRM focuses the informed consent process too heavily on document compliance rather than on ensuring meaningful understanding by research subjects. Others cautioned that researchers’ flexibility to account for individual patients’ needs could be undermined, as certain study populations may benefit from information presented in a different order. Some stakeholders objected to relegating non-required information to appendices, noting that it could impose a hardship on IRBs as the NPRM does not provide the IRBs with authority to control such content. As a result, IRBs would have no recourse against sponsors that overload appendices with extraneous liability-limiting language because they are not technically part of the ICF.

Posting ICFs within 60 Days after Enrollment Closes

The NPRM proposed a new §___.116(h) requiring a final version of the ICF for a trial conducted or sponsored by a federal department or agency to be posted on a publicly-available federal website within 60 days after the trial closes to further recruitment. Of all the proposed changes to the Common Rule, this offering may be the most universally disliked by stakeholders. Many argued that the requirement added a significant administrative burden (1) on researchers to upload ICFs, (2) on hospitals to implement compliance oversight procedures, (3) on IRBs to report investigator non-compliance, and (4) on agencies to develop this yet-to-be-established website. Stakeholders expressed concern that such burdens would not be offset by any real protection to patients.

Other commenters maintained that posted ICFs are likely to become even more lengthy and legalistic with sponsors and institutions attempting to protect themselves from post hoc scrutiny by federal regulators and plaintiffs’ attorneys. Additionally, because informed consent is a process, the public posting of ICFs does not capture many of the interpersonal interactions between investigators and subjects when discussing the research. As such, these commenters contend that a posted ICF may provide an incomplete and potentially misleading snapshot into a subject’s consent.

Stakeholders also queried how the public would use these ICFs as HHS provided no examples of proper versus improper documents. Again, without context, any potential scrutiny may be unfounded and likely too late to affect enrollees. Finally, commenters expressed worry that the industry may conduct studies in foreign markets to avoid this obligation. Because many ICFs contain confidential study designs, proprietary drug or device information, pre-market safety and efficacy information, or other commercialization strategies, commenters contend the risk of loss may not be worth the headache and drug and device manufacturers may seek friendlier regulatory pastures overseas.

CMS Announces Final Rule Updating Fire Safety for Healthcare Facilities

By Joel D. Gottesman

The Centers for Medicare and Medicaid Services (CMS) recently published a final rule updating fire safety requirements for healthcare facilities in an effort to increase patient safety and adapt to the needs of an aging population. The new rule adopts provisions of the National Fire Protection Association’s (NFPA) 2012 edition of the Life Safety Code (LSC), as well as provisions of the NFPA’s 2012 edition of the Health Care Facilities Code (HCFC). The 2012 edition of the LSC is more aligned with current state building codes and accreditation standards for Medicare- and Medicaid-participating facilities while the HCFC contains detailed provisions specific to healthcare and ambulatory care facilities.

Facilities affected by this rule include critical access hospitals; long-term care (LTC) facilities; inpatient hospice facilities; programs for all-inclusive care for the elderly; religious non-medical healthcare institutions; ambulatory surgical centers (ASCs); and intermediate care facilities for individuals with intellectual disabilities (ICF-IIDs). The rule includes changes to construction, protection and operational issues affecting safety from fire, smoke and panic that include the following:

  • Healthcare facilities located in buildings taller than 75 feet are required to install automatic sprinkler systems by July 5, 2028.
  • Healthcare facilities must also have a fire watch or building evacuation if their sprinkler system is out of service for more than 10 hours.
  • LTC facilities will be able to place fixed-seating in their corridors and place certain decorations in patient rooms, such as hanging pictures. Fireplaces in smoke compartments will be permitted without a one-hour fire wall rating.
  • Inpatient facility kitchen and/or cooking areas now may have an entrance from the hallway so that residents are able to make themselves a meal or snack.
  • All ASCs’ doors to hazardous areas must be self-closing or must close automatically and alcohol-based hand rub dispensers may be placed in corridors to allow for easier access.
  • Roller latches will be prohibited in existing and new healthcare occupancies (defined as a facility having four or more patients on an inpatient basis) for corridor doors and doors to rooms containing flammable or combustible materials. Such doors will be required to have positive latching devices instead.
  • ICF-IIDs must have expanded sprinkler requirements to include habitable areas, closets, roofed porches, balconies and decks in new facilities. Heat-detection systems must be installed in attics that are not used for living purposes and sprinklers installed in attics that are used for living purposes, including storage and fuel-fired equipment.

CMS may choose not to enforce provisions of the final rule if state fire and safety codes provide equal protection or are deemed stricter, or the agency may grant waivers if the application of a provision would impose an unreasonable hardship on the facility. The effective date of the final rule is July 5, 2016, unless a specific provision states otherwise.

Understanding the New Overtime Regulations

By Amy J. Traub and Adam R. Seldon

The U.S. Department of Labor (DOL) recently issued the final version of the much-anticipated new Fair Labor Standards Act (FLSA) regulations regarding the salary threshold for exempt employees. This article provides employers with insight into how to understand, and ultimately apply, the new regulations, which will affect employers of all sizes in all industries across the country. The clock is ticking, as employers have only 200 days to comply with the new regulations. Given the DOL’s concerted efforts to increase overtime eligibility, it should come as no surprise that enforcement efforts will follow shortly. Read more >>

Key Points of New Federal Legislation: The Defend Trade Secrets Act

By Regina Vogel Culbert

On May 11, 2016, a new federal trade secrets act (the Defend Trade Secrets Act, or the Act) was passed that expands the toolbox for trade secret protection and also necessitates changes to agreements and policies with contractors, consultants and employees. It applies to any misappropriation of a trade secret for which any act occurs on or after the date of the enactment of the Act (i.e., May 11, 2016). This alert will explain the key points of the new law and two things that may require immediate attention. Read more >>

Biologics and Biosimilars in the U.S. and Europe

As the pace of biosimilars development picks up, many pharmaceutical companies are looking for guidance in understanding the patent and regulatory landscapes in the United States and in Europe. This seminar will provide practical advice on the most recent legal developments, preparing for biosimilar approval and patent and litigation strategies.

Our speakers from BakerHostetler and Carpmaels & Ransford LLP have in-depth knowledge of the current state of play in the biologics and biosimilars field and will share their insights on best practices to find success in this rapidly developing area of the pharmaceutical industry.

Register now >>

Events Calendar

May 24-26, 2016

Washington, D.C., Partner Lance L. Shea will present on “Biologics and Biosimilars in the U.S. and Europe” along with speakers from BakerHostetler and Carpmaels & Ransford LLP in Cambridge, MA; Princeton, NJ and Rockville, MD.

June 28-29, 2016

Washington, D.C., Partner Lee H. Rosebush will present on “Drug-Pricing as It Relates to Pharmaceutical, Pharmacy, and PBM Contracting – What Does It All Really Mean?” at the American Health Lawyers Association Annual Meeting in Denver, CO.

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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