Health Law Update - September 10, 2015

Alerts / September 10, 2015

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

  • 340B Guidance: Eight Key Points Covered Entities Should Consider
  • NLRB Blows Up Staffing Agency Model: Rewrites Joint-Employer Test
  • NLRB: Nurses Entitled to Union Representation at Peer Review Meeting
  • Did Recent Changes in the Patent Laws Turn the Page on the Need for Accurate Laboratory Notebooks?
  • There’s a Code for That: Counting Down to ICD-10 and a Poem to Help You Remember!
  • Health Law Update Blog: The Trending Posts of Summer
  • SAVE THE DATE: Pharmaceutical Life Cycle Management: Navigating the New IP, FDA, and Antitrust Terrain
  • Events Calendar
340B Guidance: Eight Key Points Covered Entities Should Consider

By Lee H. Rosebush, Dena S. Kessler, Nita Garg and Lindsay P. Holmes

On August 27, 2015, the Health Resources and Services Administration (HRSA), an agency of the U.S. Department of Health and Human Services (HHS), released the 340B Drug Pricing Program Omnibus Guidance (Guidance). Referred to as “proposed” guidance by HRSA, the Guidance is intended to clarify a multitude of issues for the thousands of registered covered entities participating in the 340B Program, as well as for the contract pharmacies providing services to those covered entities.

While the Guidance covers a number of proposed changes and “clarifications” in some depth, there are several key areas for providers and manufacturers to consider. However, it is important to remember the Guidance is “draft” guidance. Consequently, it is important for both providers and manufacturers to submit their comments on the Guidance. With that said, the following are eight key points that providers and manufacturers should consider:

1. “Child Site” Registration and Eligibility

Generally speaking, “covered entities” are typically Federally Qualified Health Centers and certain types of hospitals or clinics. However, there has long been a question about outpatient clinics associated with these facilities. The Guidance goes into great detail explaining which facilities can be covered entities, particularly in the case of off-site outpatient facilities and clinics affiliated with parent covered entities. Previously, non-hospital covered entities were often considered entities that receive certain federal grants, contracts, designations, or projects. However, the Guidance states that a non-hospital covered entity may also include associated healthcare delivery sites that are located off-campus. The covered entity must demonstrate that these “child sites” satisfy certain requirements and must register them, and the Guidance proposes listing child sites in the public 340B database. HHS is seeking comments on alternatives to demonstrating the eligibility of off-site outpatient facilities.

If a parent covered entity loses its 340B eligibility, all child sites will be removed from the program at the same time according to the Guidance. However, a child site may also lose eligibility separately from the parent covered entity in certain situations.

2. Exception to GPO Prohibition

The Guidance confirms that disproportionate share hospitals, children’s hospitals, and freestanding cancer hospitals in the 340B Program are still subject to the group purchasing organization (GPO) prohibition. In other words, these entities cannot “obtain covered outpatient drugs through a group purchasing organization or other group purchasing arrangement.” However, the Guidance also confirms that the GPO prohibition does not extend to inpatient drug purchases. This prohibition extends to any pharmacy owned or operated by these covered entities, and takes effect as of the start date of enrollment in the 340B Program. Covered entities should keep in mind that the GPO prohibition also extends to the use of a GPO in certain 340B replenishment models. However, the Guidance does provide certain exceptions to the prohibition for certain covered entities from using GPOs.

  • A GPO account can be used for an off-site outpatient facility (i.e., one that is not at the same physical address as the parent covered entity) of a covered entity that is not participating in the 340B program or listed in the public 340B database.
  • GPO drugs can be provided to inpatients reclassified as outpatients by a third party, such as an insurer or a Medicare Recovery Audit Contractor, so long as the patients’ status is sufficiently documented.

The Guidance also proposes recognizing an exception to the GPO prohibition for hospitals that cannot access a drug at the 340B price or at wholesale acquisition costs to prevent disruptions in patient care.

3. Definition of Eligible Patient

The conditions that must be met for an individual to be considered a patient of a covered entity have increased. Now to be considered a patient, all of the following conditions must be met:

  • The individual receives a healthcare service at a facility or clinic site that is registered for the 340B Program and listed on the 340B database;
  • The individual receives a healthcare service provided by a covered entity provider who is either employed by the covered entity or is an independent contractor for the covered entity, “such that the covered entity may bill for services on behalf of the provider”;
  • An individual receives a drug that is ordered or prescribed by the covered entity provider described immediately above as a result of the service;
  • The individual’s healthcare is consistent with the scope of the “Federal grant, project, designation, or contract”;
  • The individual’s drug is ordered or prescribed pursuant to a healthcare service that is classified as outpatient; and
  • The individual’s patient records are accessible to the covered entity and demonstrate that the covered entity is responsible for care.

The Guidance provides that if “normal health care operations are disrupted due to a public health emergency declared by the Secretary, a covered entity may request, and HHS may authorize, a covered entity to temporarily follow alternate patient eligibility criteria.”

Finally, HHS has reaffirmed that covered entity employees are not eligible to receive 340B drugs solely by virtue of being employees of the covered entity, “but by being a patient as defined in this guidance.”

4. Prohibition of Duplicate Discounts

Currently, covered entities must report whether they use 340B drugs for drugs billed to the Medicaid fee-for-service (FFS) program. In other words, covered entities must report whether they carve in or carve out Medicaid FFS. Interestingly, the Guidance provides that covered entities may choose to make a different determination for patients of Medicaid managed care organizations (MCOs). However, in order to carve in MCO patients, the covered entity must have a process to identify Medicaid MCO patients and should have a plan to prevent duplicate discounting. If the covered entity wishes to purchase and dispense 340B drugs to Medicaid FFS or Medicaid MCO patients through a contract pharmacy arrangement, it must provide HHS with a copy of its agreement with the contract pharmacy and applicable state Medicaid agency or MCO detailing how the arrangement will prevent duplicate discounts.

5. Contract Pharmacy Arrangements

A covered entity may contract with as many contract pharmacies as it deems necessary so long as such arrangements comply with 340B Program requirements and all applicable federal, state, and local laws, including the federal anti-kickback statute. While the Guidance does not propose to limit the number of contract pharmacy arrangements a covered entity may have, only covered entities may register or make changes to a contract pharmacy listing on the 340B Program database. Additionally, HHS may remove contract pharmacies from the database and from participation in the 340B Program if it determines the contract pharmacy is not complying with the requirements of the 340B Program.

6. Manufacturer Responsibilities

The Guidance lays out specific requirements and expectations for pharmaceutical pricing agreements (PPA), when a manufacturer has entered in a Medicaid Drug Rebate Agreement (MDRA), or if the manufacturer is not subject to an MDRA but has decided to voluntarily enter into a PPA for 340B covered drugs. The Guidance addresses transfers of ownership and requires that a PPA be automatically assigned to the subsequent owner. The Guidance also reiterates that pursuant to the PPA, a manufacturer must offer all covered outpatient drugs at no more than the statutory 340B ceiling price and explains the manufacturer’s obligation to offer 340B prices to covered entities that are listed in the public 340B database. Further, the manufacturer is prohibited from conditioning an offer of the 340B ceiling pricing on a covered entity’s compliance with the 340B Program requirements. With respect to the PPA, the Guidance outlines “expectations” that apply to the manufacturers that participate in the 340B Program. These expectations include:

  • Requiring that the manufacturer sign a PPA within 30 days of enrolling in the MDRA;
  • Updating the 340B database record and PPA to ensure new 340B drugs are included;
  • Keeping records for at least five years; and
  • Allowing for HHS audits.

Importantly, the Guidance also addresses how a manufacturer should handle refunds and credits in the event the manufacturer overcharges a covered entity for a 340B drug. The refund should be the difference between the charged price and the 340B price and should occur within 90 days of the overcharge being identified by the manufacturer or HHS.

7. Rebate Option for AIDS Drug Assistance Program

The Guidance outlines the requirements and procedures for state AIDS Drug Assistance Program participation in the 340B Program. These programs may participate through the rebate option or through a hybrid option, which is participating in the 340B Program using both the direct purchase option and the rebate option. The Guidance warns that AIDS Drug Assistance Programs participating in either of the options may not seek a 340B rebate for a drug that a covered entity purchased at or below the statutory ceiling price.

8. Program Integrity

The Guidance confirms that HHS has the authority to, and will conduct, audits of various covered entities, including registered child sites and contract pharmacies. In the event of an audit, covered entities are required to provide requested records pertaining to 340B Program compliance. Covered entities will be provided with an opportunity for a hearing to respond to a negative audit finding, and will have the opportunity to submit a corrective action plan in the event of a finding of noncompliance. Manufacturers are also permitted to audit the records of covered entities, child sites, and contract pharmacies to assess compliance. In addition, manufacturers, subcontractors, and wholesalers may be subject to HHS compliance audits.

Interested stakeholders are invited to submit comments on the proposed Guidance on or before October 27, 2015.

NLRB Blows Up Staffing Agency Model: Rewrites Joint-Employer Test

By Todd H. Lebowitz


In a 3-2 decision, the National Labor Relations Board (NLRB) spontaneously redefined joint employment in a way that threatens to turn almost every healthcare provider that works with a management company or staffing agency into a joint employer for collective bargaining purposes. Read more >>

NLRB: Nurses Entitled to Union Representation at Peer Review Meeting

By Robert M. Wolin and Todd H. Lebowitz

The NLRB, in an August 27, 2015, decision, held that two nurses who were requested to voluntarily appear before a hospital’s Nursing Peer Review Committee were entitled to have their union representatives attend the peer review meeting because the nurses could reasonably expect that discipline could result from their appearances before the committee.

The hospital contended that it did not discipline employees based on the outcome of peer review meetings and that employees could not reasonably expect that the meeting would lead to disciplinary action. The NLRB dismissed that argument as without merit, even if the committee could not impose any disciplinary action.

The Board’s decision was premised on the fact that the Nursing Peer Review Committee could report the nurses’ conduct to the Kansas Board of Nursing, which could lead to suspension or revocation of their nurse’s licenses which in turn could lead to their suspension or discharge from the hospital’s employment because the hospital “cannot employ nurses who lack the requisite license.”

Once an employee makes a proper request for union representation, the employer is generally permitted, according to the NLRB, one of three options: (1) grant the request, (2) discontinue the interview, or (3) offer the employee the choice between continuing the interview unaccompanied by a union representative or having no interview at all. The hospital, however, may not continue a peer committee interview without granting the employee union representation, unless the employee voluntarily agrees to remain unrepresented after having been presented by the employer with the choices mentioned in option (3) above, or if the employee is otherwise aware of those choices.

The hospital refused to provide the nurses’ union with information regarding the peer review committee, its processes, and past disciplinary action. In response to the request, the hospital stated that “[a]ll business conducted in the committee is confidential between the Hospital and the State.” The NLRB rejected the claim of confidentiality.

Where requested information is “relevant to the Union’s ability to (a) effectively monitor and enforce the terms of the collective-bargaining agreement, (b) enable the Union to compare incidents that cause nurses to become targets of investigations, and (c) determine whether to file a grievance on behalf of unit employees who might have unknowingly been the victims of discriminatory investigations and discipline,” the party asserting confidentiality has the burden of (i) establishing that the information is confidential and (ii) “that its confidentiality interest in the information sought outweighs its bargaining partner’s need for the information."

State peer review laws “deeming certain information confidential may be considered in assessing whether there is a legitimate confidentiality interest in that information.” Thus despite the state peer review privilege laws, the NLRB found that the requested documents were essential to the union’s obligation to police and administer its contract and therefore found that the hospital was obligated to furnish the documents to the nurses’ union.

Did Recent Changes in the Patent Laws Turn the Page on the Need for Accurate Laboratory Notebooks?

By Tracy U. Palovich, PhD, S. Maurice Valla and Aaron B. Rabinowitz

With the enactment of the Leahy-Smith America Invents Act (AIA), the U.S. patent system moved to a “first inventor to file” approach for examining all applications having an effective filing date on or after March 16, 2013. Under the new law, in most circumstances it is no longer possible to remove a critical prior art reference by providing notebook data that establishes an earlier date of invention. Moreover, patent interferences are no longer available to resolve priority disputes between competing patents and applications that are subject to the AIA. These changes have led some to consider whether the time and expense devoted to documenting and maintaining laboratory notebooks is still warranted.

But data memorialized in a properly maintained lab notebook is still valuable at various critical stages in the patenting process. For example, notebook information is still useful before the U.S. Patent and Trademark Office (USPTO) and before courts of law to:

  • Establish conception/ownership (i.e., prove that the invention wasn’t derived or procured from a third party)
  • Provide evidence to establish the correct inventorship of a patent
  • Defend an allegation of prior user rights
  • Establish the rights to a trade secret
  • Supplement data to support the information set forth in a patent specification

Whether the notebook is electronic or paper, there are a number of “best practices” that should be followed for entering data into and maintaining the notebook so as to ensure that the notebook will be considered reliable evidence if needed. For paper notebooks:

  • Ensure that the pages are complete and the notebook securely stored
  • Make entries in permanent ink
  • Limit blank spaces
  • Put experiments in chronological order
  • Sign, date, and witness each page as soon as possible (ideally daily)
  • Use a bound notebook, not loose leaf or perforated pages
  • Sequentially number pages (e.g., use pre-numbered notebooks)
  • Strike out all changes and never remove pages
  • Physically attach copies of spectral and other data

Because there are many computer programs designed for the sole purpose of keeping laboratory data, it is difficult to provide recommendations for such record keeping. However, it is clear that the following are true for electronic notebooks:

  • Store the electronic data at a safe location, preferably at a location remote from the laboratory
  • Back-up the data in the electronic notebook in case of file corruptions
  • Link all spectral data to the corresponding experiment
  • Use only programs designed for record keeping (i.e., do not use just any program to record and retain your electronic data)
  • Have a formal procedure for entering data, signing the “pages,” and having the pages witnessed
  • Ensure that procedures are in place so that the data cannot be changed inadvertently or intentionally at a later date

Whether using paper or electronic notebooks, it is critical that each page of the notebook is signed, dated and witnessed by a credible witness. A credible witness is an individual who works for the same company and/or has duty of confidentiality, is NOT a co-inventor, understands the subject matter, and attests that (1) he/she "read and understood" the information in the notebook or (2) the work was done.

That being said, if you already have procedures for maintaining notebooks, continue doing so! If not, implement some best practices today for your record keeping. You won't regret it, even in this new AIA era.

There’s a Code for That: Counting Down to ICD-10 and a Poem to Help You Remember!

As the October 1, 2015, compliance date draws near, we thought it only appropriate to bring back for an encore this clever poem “to help you remember”!

Health Law Update Blog: The Trending Posts of Summer

Blown-out flip-flops, faded bathing suits, spiced pumpkin lattes and a hint of chill (OK, less heat) in the air. Yes, the melancholy signs are all there. Summer is ending. Let us bid adieu to our favorite season by savoring the trending posts of summer from the Health Law Update blog.

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SAVE THE DATE: Pharmaceutical Life Cycle Management: Navigating the New IP, FDA, and Antitrust Terrain

Efforts to extend the life cycle of pharmaceutical products frequently involve innovations and improvements in product design, formulation, route of administration, and treatment indications. In addition, negotiation of agreements with competitors, including generic and biosimilar manufacturers, is frequently employed as part of a life cycle management strategy. However, recent changes in patent, regulatory, and antitrust laws have introduced considerable complexity and risk into these strategies. Our panel of experts in these legal specialties will discuss the issues and provide their suggestions for developing successful life cycle management strategies. Learn more >>

Events Calendar

Join BakerHostetler's healthcare attorneys at various speaking events and webinars. Read more >>

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.


Kathleen P. Rubinstein, MPA

Healthcare Industry
Key Contacts

B. Scott McBride

Charlene L. McGinty