Health Law Update – May 5, 2016

Alerts / May 5, 2016

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

  • Caution: False Claims Act Penalties Poised to Double
  • Escobar Oral Arguments: Justices Imply Outcome – False Claims Act Implied Certification May Survive
  • Medicaid and CHIP Managed Care Final Rule: It’s All About Consistency
  • FY 2017 IPPS Proposed Rule Results in Modest Increase for Hospitals
  • The Proposed Common Rule: The Tribe Has Spoken, and They Have Concerns
  • Events Calendar
Caution: False Claims Act Penalties Poised to Double

By Darby C. Allen and B. Scott McBride

A preview of the effects that a provision in the Bipartisan Budget Act of 2015 will have on healthcare providers came to light this week when the Railroad Retirement Board (Board) published an interim final rule implementing the Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015 (Act). The Act requires federal agencies to make cost-of-living adjustments to civil monetary penalty (CMP) amounts based on increases in the Consumer Price Index (CPI). The Board, which has jurisdiction over certain False Claims Act (FCA) violations, is the first agency to issue a regulation implementing the Act. The adjusted penalties for FCA violations calculated by the Board are staggering: the minimum penalty will be increased from $5,500 to $10,781 and the maximum penalty will be increased from $11,000 to $21,563.

The significant increase is due to the Act’s requirement for agencies to make an initial “catch-up adjustment” through an interim final rule effective by August 1, 2016. Specifically, the catch-up adjustment is the difference between the CPI in October of the calendar year in which the penalties were last adjusted and the CPI in October 2015. The Board determined that for purposes of the Act, the FCA penalties were last updated in 1986, and it applied a CPI increase of approximately 215 percent to the 1986 penalty amounts.

An agency may adjust a CMP by less than the formula dictates only if (1) it publishes a proposed rule and determines that increasing the CMP by the required amount will have a negative economic impact or the social costs of increasing the CMP would outweigh its benefits, and (2) the director of the Office of Management and Budget concurs with the determination. No agencies have published such a proposed rule. Going forward, the CMP amounts will be adjusted without notice and comment rulemaking each January based on changes in the CPI.

The U.S. Department of Justice (DOJ) is also required to update its CMP regulations related to the FCA. Because the formula for the initial catch-up adjustment is set by the Act, we expect the DOJ amounts to match the Board’s calculations. The Act mandates that the adjusted amounts will be applicable to all CMP assessments occurring after August 1, 2016, even if the violation occurred before such date.

FCA penalties in the context of healthcare services rack up quickly because each line item separately billed in violation of the FCA is subject to the per-claim penalty. For example, if 2,000 claims for a $50 lab test are found to be inappropriate under the FCA, the treble damages would be $300,000 and under the Act’s formula, penalties could reach a staggering $43,126,000. The extreme penalty amount in this example illustrates why a defendant in an FCA case might assert that penalties are excessive in violation of the U.S. Constitution. Indeed, the argument was raised in many cases with the existing penalty amounts. The adjusted penalty amounts only reinforce the importance of undertaking effective, proactive compliance efforts.

Escobar Oral Arguments: Justices Imply Outcome – False Claims Act Implied Certification May Survive

By B. Scott McBride and John W. Petrelli

The U.S. Supreme Court recently held oral arguments in the case of Universal Health Services, Inc. v. U.S. ex rel. Escobar, No. 15-7, which is set to decide the viability of implied certification under the FCA. As discussed in our last update on the Escobar case, implied certification is a judicially-created theory under the FCA that establishes liability for a provider or contractor, that, although delivering or performing the materials or services claimed, violated a contract, statute or regulation as a condition of payment even though the provider or contractor did not expressly certify such compliance as a condition of payment. Implied certification has been a split issue among the circuit courts and a source of frustration for providers. Escobar’s broad reach has drawn significant attention to the case, including numerous amicus briefs seeking to restrict the potential for perceived limitless exposure under the FCA. Should the Supreme Court move to strike implied certification, many pending FCA cases quickly could become unsustainable.

A Morass?

“[i[It proves my point, Your Honor, that this is a morass.”

– Roy T. Englert, Counsel for Universal Health Services

The justices were particularly attuned to the theory of implied certification in light of the facts at hand, as opposed to considering the global consequences of the theory. In one exchange, Justice Sonia Sotomayor said that she had “a very hard time accepting that if you provide – if you claim money for a service ... [without] a qualified individual, unsupervised by a qualified individual, which is a requirement specifically in the regulations, I’m having a hard time understanding how you have not committed a fraud.”

Counsel for Universal Health Services, Roy T. Englert, responded by noting the difficulty in such a sweepingly broad theory of liability, correctly pointing out that the very regulation the First Circuit Court of Appeals relied upon in finding fraud was not once cited by the petitioners in the seven complaints to the administrative agencies or in the complaint that was the basis of the federal action, which had been amended several times over. Mr. Englert stated, “[i[It proves my point, Your Honor, that this is a morass. And for one to think, after the fact, this is basic and central and this is fraud, is a plaintiff’s lawyer’s game.”

What Constitutes a Fraudulent Claim?

“In demanding payment for satisfaction of the contract, you are not making a recommendation that you have satisfied the contract?”

–Justice Elena Kagan

In another exchange, Justice Kagan pressed Mr. Englert on what would constitute a fraudulent claim. In comparing the current case to hypotheticals stemming from Civil War-era cases where the government is paying for guns that do not shoot, boots that fall apart, and food that cannot be eaten, Justice Kagan stated, “I would think that this is the exact same, [in] that the contract was for a doctor’s medical care, and a doctor’s medical care was not provided. A nondoctor’s care was provided.” Mr. Englert aptly responded that none of the hypotheticals relied upon from the Civil War era involved an implied certification, which is what is at issue in Escobar, because implied certification did not arise under the FCA until 1994 in the Ab-Tech Construction case.


“Is every material breach of a federal contract an FCA violation?”

–Chief Justice John G. Roberts

The respondents and government relied extensively on the requirements of materiality and knowledge to act as sufficient safeguards against the perceived issues with implied certification. David Frederick, counsel for the whistleblowers, stated that the “two elements of materiality and knowledge are going to solve the vast [majority] of the problems.” Justice Anthony Kennedy appeared to agree “[i]It seems to me we just can’t think about fraud unless we have materiality in some sense. Otherwise, it seems to me, fraud doesn’t make much sense.”

Justice Roberts provided the only significant resistance to Mr. Frederick’s claims regarding knowledge, noting “[t]That causes concern, of course, because there are thousands of pages of regulations under Medicaid and Medicare programs.” Mr. Englert later echoed the issue, stating that “[t]his morass of regulations, bluntly, is worse than the Internal Revenue Code. It’s full of cross-references; it’s full of contradictions, as the First Circuit itself acknowledged…”

Roadmap for Fraud?

“How do you distinguish between those regulations, breach of which are fraudulent when you breach them … from those that are not?”

–Justice Stephen G. Breyer

Evidenced by the oral arguments are the drastically opposing views of implied certification and its potential reach in the case. Looking to draw on middle ground, several justices inquired about a legal concept that would trigger liability only from violations that were explicit on conditions of payment. Ultimately, the justices seemed uncertain, however, about instituting such a form of liability which Mr. Frederick argued would create a “roadmap for fraud.”

Looking Ahead

The arguments by Universal Health Services were generally met with skepticism by the majority of justices, who appeared hesitant to dismiss implied certification as a basis of liability under the FCA. In the hour-long session, a preponderance of the criticisms stemmed from the traditionally left-leaning justices – namely Justice Kagan and Justice Sotomayor. Although for providers following the case, the most troubling skepticism came from Justice Kennedy, who could be pivotal in reaching a majority decision.

A decision is expected to be handed down at the end of the Supreme Court’s term in late June. With the recent passing of Justice Antonin Scalia, a 4-4 split is very possible. If that happens, the First Circuit’s ruling would likely be affirmed, and the distinct split among the circuit courts would remain.

Medicaid and CHIP Managed Care Final Rule: It’s All About Consistency

By Susan Feigin Harris and Summer D. Swallow

The Centers for Medicare & Medicaid Services (CMS) recently issued a 1,425-page regulation (Rule) on managed care in Medicaid and the Children’s Health Insurance Program (CHIP), dubbed the first overhaul of these regulations in over a decade. CMS also issued nine “fact sheets,” indicating the Rule “supports delivery system reform efforts, strengthens program integrity by improving accountability and transparency, and aligns key rules with those of other health coverage programs.” The Rule and its preamble shed light on the lack of uniformity existing in Medicaid – not surprising as it is principally a state-run program. The Rule attempts to align Medicaid managed care requirements with those of Medicare Advantage, Qualified Health Plans (QHPs) and other commercial plans, while still ensuring state flexibility in areas such as network adequacy.

Similar to insurance coverage programs, the Rule requires Medicaid and CHIP health plans, which are the only health benefit plans for which a medical loss ratio (MLR) does not apply, to calculate and report an MLR. Additionally, appeals, consumer information, and provider screening and enrollment procedures would also be aligned. Although the Rule’s intent is to obtain greater efficiencies between and among the various products, the Rule and CMS acknowledge that since many large insurers offer plans in all three markets, conformance with three programs can be difficult.

Medical Loss Ratio

Under the Affordable Care Act, both commercial health insurance plans and Medicare Advantage plans are required to spend at least 80 to 85 percent of premium dollars on medical care, or refund the difference to consumers. While some states already impose similar MLR requirements in their Medicaid programs, the Rule ensures such obligations will exist for all Medicaid managed plans. Beginning with contracts starting on or after July 1, 2017, Medicaid managed care plans will be subject to a national MLR standard of at least 85 percent.

MLR refers to the share of the revenues (capitation payments from the state) that a plan spends on the provision of patient care and quality improvement activities as opposed to administration. CMS advises that the “common national standard for calculating MLR will allow comparability across states, facilitate more accurate rate setting, and reduce the administrative burden on managed care plans that operate in multiple states or have multiple product lines.”sistent with the standards applied by Medicare Advantage plans and the private market, CMS acknowledges that “the unique characteristics of the Medicaid and CHIP programs” require some variations. For example, Medicaid MLR standards allow for the inclusion of costs associated with outreach, case management/care coordination and quality improvement in the numerator of the calculation. However, in other areas CMS maintained consistency with the requirements for private plans. While CMS originally suggested in the proposed rule that fraud prevention activities would be included in the MLR calculation, it ultimately decided in the Rule to maintain consistency with private plans and not allow fraud prevention costs to be included in the numerator of the calculation.

Although CMS does not require penalties if plans fail to meet MLR thresholds, it allows states the flexibility to require rebates, which if collected must be shared with the federal government in accordance with federal financial participation. Additionally, states would be expected to take failure to meet MLR thresholds into account when setting future payment rates. Indeed, CMS links the MLR to the development of actuarially-sound rates, defined as rates that are projected to provide for all reasonable, appropriate, and attainable costs under the terms of the contract and for the time period and population covered under the contract. CMS estimates that between 2018 and 2020 the federal government would save from $7 billion to $9 billion from plans failing to meet established MLRs.

Special Contract Provisions Related to Payment – Section 438.6

This provision may be one of the more important sections in the Rule, as it sets forth the various changes and expectations involved in establishing rates between the states and managed care organizations (MCOs), as well as CMS expectations for how the entire payment model differs between fee-for-service (FFS) Medicaid and Medicaid managed care. Of significant importance is the preamble discussion of how intergovernmental transfers and the use of the upper payment limits to finance Medicaid must change in a managed care environment, eliminating over the course of the next 10 years the use of what some states have dubbed “pass-through” payments to help providers supplement budgetary shortfalls.

Several changes were made to financial incentive arrangements that states use with MCOs to institute financial rewards for meeting performance targets specified in the contract, such as risk corridors and risk-sharing mechanisms. Provisions regarding the manner in which states incorporate graduate medical education (GME) payments into actuarially-sound MCO rates are modified in the Rule, as are provisions ensuring that states have the flexibility to specify delivery reform initiatives, such as the patient-centered medical homes, efforts to reduce the number of low-birthweight babies, and broad provider health information exchange projects. States are “permitted” to set minimum reimbursement standards and raise provider rates, including specifying a uniform dollar or percentage increase for all providers that supply a particular service under a contract. States may also set a maximum fee schedule, as long as the MCO retains the ability to reasonably manage risk. States are provided the flexibility to direct expenditures or make participation in value-based purchasing or delivery or performance improvement to a specific class of providers rather than to all providers.

Most significant, however, is the preamble discussion and changes with regard to a new subsection (d) to Section 438.6 governing the use of pass-through payments, defined as any amount required by the state to be added to the contracted payment rates between the MCO and providers – hospitals, physicians or nursing facilities – not for a specific service or benefit covered under the contract, but rather as a supplemental payment. The Rule phases out the ability of states to use pass-through payments by allowing states to direct MCO expenditures based only on the utilization or delivery of services to enrollees or the quality or outcomes of services. Since so many states have used these payments as an important revenue source for safety-net providers, the Rule institutes a phased-in transition for removal of this funding device. CMS indicates clearly, in its preamble, that it believes the statute and regulations prevent states from making a supplemental payment to a provider through a managed care plan.

Network Adequacy

The Rule also creates a new section 438.68 to address the development of network adequacy standards for medical services and long-term services and supports (known as LTSS). States are required to develop and make publicly available time and distance network adequacy standards for primary care (adult and pediatric), OB/GYN, behavioral health, specialist (adult and pediatric), hospital, pharmacy, pediatric dental, and additional provider types that promote the objectives of the Medicaid program. Consistent with the regulations for QHPs, the Rule does not include detailed and specific time-and-distance standards or provider-to-enrollee ratios, but rather defers to each state to develop specific standards.

With regard to the large number of comments received requesting CMS to identify more specific provider types in areas such as pediatric specialties and cancer hospitals, the agency repeatedly responded “We believe it is inappropriate to add federal requirements on such a state-specific basis.” CMS indicated that states are in the best position to engage a variety of stakeholders when defining specialist categories or other specific service providers in setting forth network adequacy standards.

The Rule lists factors states should consider in establishing delivery network requirements, including direct access to women’s health specialists, availability of second opinions, and access to out-of-network providers. Additionally, states must consider the ability of providers to communicate with enrollees who have limited English proficiency and to accommodate disabilities and the access to telemedicine, electronic medical records and other innovative technologies in healthcare delivery. CMS is the ultimate arbiter of network adequacy, as the state is required to submit documentation that supports the assurance of the adequacy of the network for each MCO.

Beneficiary Protections

The Rule implements most of CMS’s proposed provisions intended to close a perceived “gap” in beneficiary protection in the existing Medicaid managed care regulations. The Rule contains many grievance and appeals provisions and focuses on how to better ensure that continuity of care and care coordination are incorporated into the Medicaid program.

With regard to care coordination, in particular, CMS finalized its proposal to establish minimum standards for care coordination, patient assessment times and treatment plans. While many states were already incorporating these provisions into their contracts, the Rule now requires that all MCOs and states meet these standards. The focus is on ensuring that Medicaid, Medicaid FFS and CHIP plans all coordinate with one another to ensure that individuals make smooth transitions in and out of such programs. Initial health screenings must occur within 90 days.

FY 2017 IPPS Proposed Rule Results in Modest Increase for Hospitals

By Amy E. Fouts, Ernessa B. McKie and Kyle R. Gregory

CMS recently issued a proposed rule updating fiscal year (FY) 2017 Medicare payment policies and rates under the Medicare inpatient prospective payment system (IPPS) and the long-term care hospital (LTCH) prospective payment system. Highlights of the proposed rule applicable to IPPS hospitals are the focus of this summary. With the proposed rule, CMS continues to emphasize its focus on quality initiatives and takes significant steps toward alignment of these programs. Comments on the proposed rule are due by June 17, 2016. Once finalized, the updated IPPS will apply to discharges on or after October 1, 2016.

Update to Prospective Payment Rate

Overall, CMS estimates the proposed rule will increase IPPS rates by 0.85 percent in FY 2017, after accounting for inflation and other adjustments required by law. With this increase, hospitals will receive an estimated $539 million more under IPPS than they did in FY 2016. As in previous years, many of these adjustments are closely tied to participation in quality-of-care programs.

Two-Midnight Reduction Reversed

The two-midnight rule established in the FY 2013 IPPS update, created a time-based threshold based on the admitting physician’s anticipated length of stay. CMS proposes to drop the inpatient payment cuts originally used to offset the rule and will provide a temporary positive adjustment in FY 2017 to address the retroactive effects of the cuts in FYs 2014, 2015 and 2016.

Hospital Readmissions Reduction Program (HRRP)

For FY 2017 and subsequent years, CMS proposes to use the hospital’s risk-adjusted readmission rate during a three-year period for the following measures:

  • Acute myocardial infarction
  • Heart failure
  • Pneumonia
  • Chronic obstructive pulmonary disease
  • Total hip arthroplasty/total knee arthroplasty
  • Coronary artery bypass graft (CABG)

The proposed FY 2017 applicable period will include Medicare Provider Analysis and Review claims with discharge dates from July 1, 2012 through June 30, 2015. CMS clarified that excess readmission rates will be publicly reported on the Hospital Compare website following the preview period. CMS is not putting forward any changes to the HRRP measures in the FY 2017 IPPS rule, declining to incorporate any sociodemographic adjustment into the HRRP’s measure. The regulatory impact analysis suggests that refinement of the pneumonia measure and addition of CAGB present the greatest financial impact.

Hospital Value-Based Purchasing (VBP) Program

Several changes would affect the VBP program, including the addition of two condition-specific payment measures (one for acute myocardial infarction and one for heart failure) beginning with the FY 2021 program year and a 30-day mortality measure following CABG surgery beginning with the FY 2022 program year.

CMS proposes to include the catheter-associated urinary tract infections and central line-associated bloodstream infections measures from non-ICU locations for the Hospital VBP Program beginning with the FY 2019 program year, with a baseline period of January 1, 2015, through December 31, 2015, and a performance period of January 1, 2017, through December 31, 2017. CMS proposes to shorten the performance period for the PSI 90 measure for the FY 2018 program year. Beginning with the FY 2019 program year, the Patient- and Caregiver-Centered Experience of Care/Care Coordination domain will change to Person and Community Engagement.

The agency further proposes to modify the definition of a survey-related immediate jeopardy for purposes of Hospital VBP eligibility. Under the proposal, a hospital must incur at least three (previously two) immediate jeopardy citations during the performance period to be excluded from the program. With respect to EMTALA-related immediate jeopardy citations, CMS is proposing to change the date of the immediate jeopardy citation for exclusion purposes to the date of CMS’s final issuance of Form CMS-2567 to the hospital.

Hospital Acquired Condition (HAC) Reduction Program

CMS is proposing to make five changes to existing HAC Reduction Program policies:

  • Create NHSN (National Healthcare Safety Network) CDC hospital-acquired infection data submission requirements for newly-opened hospitals.
  • Clarify data requirements for Domain 1 scoring. To receive a Domain 1 score, a hospital must have three or more eligible discharges for at least one component indicator and 12 months or more of data.
  • Establish performance periods for the FY 2018 and FY 2019 HAC Reduction Programs.
  • Adopt the refined PSI 90: Patient Safety for Selected Indicators Composite Measure (NQF # 0531). This modification is a response to NQF (National Quality Forum) concerns and will be adopted for the FY 2018 payment determination and beyond.
  • Adjust the scoring methodology from the current decile-based scoring. Under the new methodology, hospitals would receive a score for each measure that compares performance to the national mean.

Reduction in Disproportionate Share Hospital (DSH) Payments

The proposed rule sets out adjustments to the new DSH formula designed to reflect the growth of insurance coverage. For FY 2017, the amount available for additional uncompensated care payments will decline from 75 percent to 56 percent of the Medicare DSH funds that hospitals would have received under the old DSH formula. In addition, CMS proposes a change in how DSH payment distribution is determined. Over a three-year period beginning in FY 2018, CMS plans to transition away from basing payments exclusively on the hospital’s share of Medicare SSI and Medicaid-insured low-income patient days to incorporating the uncompensated care estimate from Worksheet S-10. CMS estimates the FY 2017 updates will amount to a 0.3 percent reduction in Medicare DSH payments and uncompensated care payments, a cut of $400 million in overall DSH payments compared with FY 2016.

Hospital Inpatient Quality Reporting (IQR) Program

The Hospital IQR program proposals present a significant move toward reporting all measures electronically for calendar year (CY) 2017. CMS has also proposed a validation strategy for electronic Clinical Quality Measures (eCQMs).

Several changes are proposed to the existing Hospital IQR measure set. Specifically, four new claims-based measures (three clinical episode-based payment measures and one communication and coordination-of-care measure) are proposed and 15 measures (13 eCQMs and two structural) will be removed for the FY 2019 determination and beyond. These eCQMs will be removed from both the IQR and the electronic health record (EHR) incentive program. CMS is also proposing refinements to two claims-based measures: (1) PN Payment: Hospital-Level, Risk-Standardized 30-Day Episode-of-Care Payment Measure for Pneumonia; and (2) PSI 90: Patient Safety and Adverse Events Composite.

As a signal of alignment with the EHR incentive program, hospitals would be required to (1) submit data for an increased number of eCQMs and (2) report a full year of eCQM data beginning with the CY 2017 reporting period. CMS also clarified that for ED-1, ED-2, VTE-6 and PC-01, hospitals must submit a full year of chart-abstracted data regardless of whether the data is submitted electronically. Hospitals will be required to submit eCQM data two months following the close of the reporting period calendar year for the CY 2017 reporting period.

CMS further proposes to incorporate eCQM validating into the Hospital IQR Program. The proposed rule provides that a random sample of up to 200 hospitals will be selected for validation of eCQMs beginning in spring of CY 2018. If a hospital is selected for chart-abstracted targeted or random validation that hospital would be excluded from the eCQM validation sample. CMS estimates these changes will result in total hospital costs of $30 million.

Finally, CMS is proposing changes to its extraordinary circumstances exception (ECE) policy by (1) extending the general ECE request deadline for non-eCQM circumstances from 30 to 90 calendar days following an extraordinary circumstance, and (2) establishing a separate submission deadline for ECE requests related to eCQM reporting circumstances of April 1 following the end of the reporting calendar year.

Implementation of Notice of Observation Treatment and Implication of Care Eligibility Act

As part of the Notice of Observation Treatment and Implication of Care Eligibility (NOTICE) Act signed into law on August 6, 2015, the proposed rule would require hospitals and critical access hospitals to furnish a new CMS-developed standardized notice, the Medicare Outpatient Observation Notice (MOON), to Medicare beneficiaries or enrollees who have been receiving observation services for more than 24 hours. The MOON will inform beneficiaries of their status as outpatients receiving observational services and explain the implications of observation services on cost-sharing and eligibility for Medicare coverage of skilled nursing facility services.

CMS has proposed the following delivery requirements for the MOON:

  • Must be provided no later than 36 hours after observation services are initiated or sooner if the individual is transferred, discharged or admitted as an inpatient.
  • An oral explanation must be provided with the delivery of the written notice.
  • The beneficiary, or an individual qualified to act on his or her behalf, must sign the notice to acknowledge its receipt and understanding of the notice. If refused, the staff member who presents the notice to the beneficiary must sign and provide additional information regarding the signature dismissal.

CMS plans to release a proposed draft of the MOON for comment soon.

Other Proposals

The proposed rule also addresses other programs and changes, including (1) changes to payments for hospitals and hospital units excluded from the IPPS; (2) cost report regulations to correct technical changes and typographical errors in 42 CFR pt. 413; (3) changes to the wage index; and (4) graduate medical education payments.

The Proposed Common Rule: The Tribe Has Spoken, and They Have Concerns

An overview of stakeholder comments on the redefinition of “biospecimen” as a “human subject” and the consent requirements for secondary use of these biospecimens

By Gregory E. Fosheim and Payal P. Cramer

On September 8, 2015, the U.S. Department of Health and Human Services (HHS) and 15 other federal agencies issued a notice of proposed rulemaking (NPRM) to update the federal policy for the Protection of Human Subjects, more commonly known as the Common Rule. More than 2,000 comments were submitted in response to the NPRM. This update focuses on the discussion surrounding the redefinition of “biospecimen” as a “human subject” and the consent requirements for secondary use of these biospecimens. In sum, stakeholders’ general response to these proposed changes was unenthusiastic and evidenced a concern for the future of cost-efficient research. What the relevant agencies do with these comments is likely years away.

Redefining Biospecimen

The Common Rule defines “human subject” as (1) a living individual about whom an investigator conducting research obtains data through intervention or interaction with the individual or (2) individually identifiable private information that may readily lead to the ascertainment of the individual’s identity. Currently, researchers may use biospecimens that have been stripped of all identifiers without obtaining the individual’s consent because the data and specimens do not meet the definition of “human subject.”

The NPRM expressed concern that technologic advances and whole-genome sequencing could result in the re-identification of biospecimens or data that have been stripped of identifiers. As a result, the NPRM proposed to change the definition of “human subject” to include all biospecimens, regardless of identifiability. Researchers would then be required to obtain consent from patients to use these biospecimens for unspecified secondary research purposes different from the original purpose for which they were collected. The NPRM proposed doing so by means of a broad consent.

Concerns and Criticisms

While stakeholders universally complimented the agencies’ attempt to update and modernize the Common Rule, they nevertheless offered stark differences in their views of some of the major proposed changes. For example, the American Medical Association (AMA) stated that it “strongly support[s] the development of guidance specific to research involving biospecimens or identifiable private information, including the secondary use of specimens or information initially collected for non-research purposes.” Others were less complimentary. Representing five independent institutional review boards, the WIRB-Copernicus Group commented that the distinctions between biospecimens and other types of data were “confusing and not warranted,” and it encouraged HHS to treat biospecimens and data the same under the regulations, even if biospecimens are theoretically identifiable.

Acknowledging that informed consent to use identifiable biospecimens remained crucial for patient autonomy, stakeholders representing the medical device, pharmaceutical and biotechnology manufacturing industries expressed concerns over the future of research if surplus biospecimens lacking individual identifiers also required consent before use. Because each biospecimen’s owner would need to be contacted and consented, the Advanced Medical Technology Association (AdvaMed) estimated that costs to conduct research would raise 10- to 50-fold and studies that normally take days or weeks would require months and years. This, AdvaMed stated, “would be starkly inconsistent with FDA’s statutory and regulatory mission of promoting public health and ensuring that medical devices provide a reasonable assurance of safety and effectiveness.”

Pharmaceutical Research and Manufacturers of America (PhRMA) similarly observed that researchers and hospital administrators overseeing biorepositories would need to develop tracking systems to match biospecimens in storage with the consent status of the person who provided the specimen. The AMA questioned whether the biorepository or the requesting researcher would be responsible for contacting and consenting patients whose specimens were not originally donated for research. This administrative burden and consideration of non-research patients’ privacy may lead hospitals to forgo making samples available to researchers.

AdvaMed, PhRMA and St. Jude Children’s Research Hospital all noted the push toward precision medicine and translational research. These cutting-edge studies require convenient access to vast stores of samples with multiple biomarkers for cancer and other diseases. Identifying and contacting thousands of patients certainly is not practicable, and may be unethical, according to AdvaMed, as it would require researchers to contact terminally ill patients possessing unique biomarkers to request the use of their already available biospecimens. Combined, the stakeholders expressed misgivings that this could undermine the intent of the Common Rule, delay important breakthroughs in drug and device development, and compromise the principles of respect, beneficence and justice described in the Belmont Report.

Stakeholder comments revealed similar concerns about patient privacy. For example, both AdvaMed and the Association of Clinical Research Organizations (ACRO) cautioned that researchers would need to track previously unidentifiable biospecimens with a unique patient identifier to determine whether the patient granted consent for unspecified future use. Additionally, researchers would need to monitor whether the patient withdrew consent or whether such consent expired, given the NPRM’s proposed 10-year duration for broad consent – an “arbitrary” and “difficult to track and enforce” period, according to St. Jude Children’s Research Hospital.

Interestingly, ACRO hypothesized that redefining “biospecimen” as “human subject” may have unintended political and ethical consequences, co-opted by groups citing a federal definition of “personhood” as precedence for what “human life” means. Such a consequence would be entirely unrelated to the Common Rule’s intent.


Along with criticisms, stakeholders had a number of thoughtful suggestions. Many advocated for an “opt-out” broad consent option rather than an “opt-in” option. In an opt-out option, patients would assent to the use of non-identifiable biospecimens for unspecified future research unless they affirmatively said no. As ACRO advocated, patient education at the point of specimen collection regarding de-identification of biospecimens and the risk of re-identification would increase patient autonomy by giving patients the opportunity to discuss privacy risks rather than distracting them with a misleading consent alluding to unspecified future research. AdvaMed further argued that an opt-in approach would likely become routine rather than being a meaningful discussion about the likelihood of risk, thereby undermining patient autonomy. PhRMA agreed, stating that an opt-out approach would maximize the opportunities for sample donations and enhance scientific research without increasing risks to subjects.

Regarding the potential future risk of re-identification through technologic advances, AdvaMed reminded the agencies of their regulatory authority to “encourag[e] HHS under its existing statutory authorities ... to impose administrative, regulatory, civil, and even criminal penalties on ... the unauthorized re-identification of biospecimens that are not individually identifiable.” ACRO also cited the success of data use agreements under HIPAA with regard to a limited data set. These data use agreements allow for sharing of data while specifically prohibiting re-identification of de-identified data through penalties and other restrictions. A similar application could be used for shared, unidentifiable biospecimens. These regulatory and contractual considerations would protect patient privacy without compromising scientific research.

Events Calendar

May 16, 2016

Houston Partner Susan Feigin Harris will present “In a Different Voice: Ways Women Can Create Innovative Legal Service Models and Differentiate Themselves in a Competitive Market” at the AHLA Women’s Leadership Institute in Nashville, TN.

May 18-19, 2016

Washington, D.C., Partner Lee H. Rosebush, along with other industry experts, will participate on the panel “Preparing for Reimbursement in an Evolving Landscape” at the Southeastern Medical Device Association (SEMDA) 2016 Conference at the Music City Center in Nashville, TN.

Atlanta Partner Kristen McDermott Woodrum will moderate the panel “Preparing for Reimbursement in an Evolving Landscape” at the Southeastern Medical Device Association (SEMDA) 2016 Conference at the Music City Center in Nashville, TN.

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.

Related Services