Health Law Update—June 13, 2013

Alerts / June 13, 2013

Welcome to this week's edition of the Health Law Update. Topics covered today include:

We hope you find this information helpful. Please contact any member of BakerHostetler's Healthcare Team with questions.


Last summer, a federal judge in Houston ruled that the Wartime Suspension of Limitations Act (WSLA), found in Title 18, § 3287 of the U.S. Criminal Code, applied to a civil False Claims Act (FCA) case and suspended the statute of limitations until five years after the conclusion of the conflicts in Iraq and Afghanistan. While the decision was novel at the time, the government’s continued reliance on the WSLA threatens to make it more difficult for FCA defendants, including healthcare providers, to assert a statute of limitations defense.
Congress initially enacted the WSLA for World War I and repealed it in 1927. Congress reenacted the WSLA in 1942 for World War II. The current version of the WSLA provides, in pertinent part, as follows:

When the United States is at war or Congress has enacted a specific authorization for the use of the Armed Forces . . . the running of any statute of limitations applicable to any offense (1) involving fraud or attempted fraud against the United States shall be suspended until 5 years after the termination of hostilities as proclaimed by a Presidential proclamation, with notice to Congress, or by a concurrent resolution of Congress.

United States v. BNP Paribas

The government’s newfound reliance on the WSLA to save civil FCA cases that are time-barred by the statute’s six-year statute of limitations appears to have begun with the decision in United States v. BNP Paribas SA, 884 F. Supp. 2d 589 (S.D. Tex. 2012). In BNP, the government alleged false claims by BNP to a U.S. Department of Agriculture program, with the last claim occurring in September 2005. The complaint was filed in October 2011, one month beyond the statute of limitations. BNP moved to dismiss, and the government invoked the WSLA. BNP argued that the WSLA, a criminal statute, had no application in civil cases -- namely, the term "offense" in the WSLA evidenced Congress’s intent that it apply only to criminal violations, where that term is ordinarily found. In rejecting BNP’s argument, the district court focused on Congress’s 1944 amendment to the WSLA, in which Congress deleted the phrase "now indictable" from the 1942 version, to support its finding that the WSLA could be applied in civil cases.


WSLA and Healthcare Fraud Cases

The decision in BNP signals that the WSLA might be invoked successfully in otherwise time-barred FCA cases brought for false claims submitted to the Medicare and Medicaid programs. Additional case law may be on the horizon and provide additional guidance as to whether the WSLA applies to a civil case involving a domestic program with no relationship to war. For example, in United States v. Wells Fargo Bank, N.A., No. 12-CV-7527 (S.D.N.Y. filed Oct. 9, 2012), the district court soon will decide whether the statute of limitations on seven-year-old claims brought by the government against Wells Fargo -- for allegedly defrauding a domestic lending program -- was suspended by the WSLA.

Moreover, while the WSLA does not appear to have been tested with regard to FCA cases involving Medicare and Medicaid, the government may find it necessary to invoke the WSLA in such cases, particularly as the number of healthcare fraud investigative leads continue to rise and resources decline due to recent federal sequester measures (arguably, the result of war costs), including the furloughing of prosecutors. Apart from the applicability of the WSLA, the larger concern for the government in evaluating the strength of an otherwise time-barred case should always include the potential disinterest of many judges and jurors in hearing "stale" cases.

For more information, please contact Gregory S. Saikin, or 713.646.1399.

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In a ruling that may impact how professionals attempt to limit competition from alternative providers, the North Carolina State Board of Dental Examiners (Board) failed to convince the U.S. Court of Appeals for the Fourth Circuit that the Board’s successful effort to "expel non-dentist providers from the North Carolina teeth-whitening market" is immune from antitrust attack. Instead, the court found the case to be "about a state board run by private actors in the marketplace taking action outside of the procedures mandated by state law to expel a competitor from the market." The court affirmed the ruling by the FTC that the Board’s connection with state government was insufficient to shield it from the antitrust laws.

With the growth and availability of teeth-whitening services from nondentist providers, a number of dental associations across the country have embarked on a campaign to limit competition from these alternative providers. In some states, legislation was introduced to define the practice of dentistry to include teeth-whitening except for over-the-counter products for personal use. In other states, like North Carolina, the dental boards took the view that the provision of teeth-whitening services requires a dental license and sent cease-and-desist letters to stop these competitive teeth-whitening services.

After receiving complaints from dentists about nondentists offering teeth-whitening services, often at a significantly lower price than that offered by dentists, the North Carolina Board sent at least 47 cease-and-desist letters to 29 nondentist teeth-whitening providers. Those letters, among other things, demanded that the nondentist cease and desist "all activity constituting the practice of dentistry." The Board’s letters, the court said, "effectively caused non-dentists to stop providing teeth-whitening services in North Carolina and also caused manufacturers and distributors of teeth-whitening products used by these non-dentist providers to exit and hold off entering North Carolina." The Board went even further and sent cease-and-desist letters to landlords who rented kiosk space in malls to teeth-whitening services.

The FTC sued the Board to stop its exclusion of nondentist teeth whiteners from the market, and it won. On appeal, the court swiftly rejected the Board’s attempt to justify its efforts to exclude nondentist teeth whiteners on health and safety grounds and also made quick work of the Board’s main argument -- that it is exempt from the antitrust laws under the "state action" doctrine, which exempts anticompetitive restraints imposed by the states "as an act of government."

The court identified three categories that qualify for an antitrust exemption under the "state action" doctrine: (1) state legislature and state supreme courts when acting legislatively automatically qualify as sovereign entities; (2) private actors can qualify when acting pursuant to a "clearly articulated and affirmatively expressed" "state policy" and their conduct is "actively supervised by the State itself"; and (3) even without active state supervision, municipalities and "substate governmental entities" qualify "when they act pursuant to state policy to displace competition with regulation or monopoly public service."

The Board argued that, as a state agency, it was acting "pursuant to state policy to displace competition with regulation" and, thus, qualified for an antitrust exemption under category number (3) above. But the court rejected the Board’s claim that it is a state agency, concluding instead that it is a private actor. Significantly, the court noted that even though the Board is a state-created agency charged with granting dental licenses that can also seek a court order enjoining the unlicensed practice of dentistry, six of its eight members are active dentists that are elected by other dentists. As such, the court agreed with the FTC that "when a state agency is operated by market participants who are elected by other market participants, it is a ‘private’ actor" that must satisfy the requirements under category number (2) above to qualify for an antitrust exemption.

Having rejected the Board’s claim that it automatically qualified for an antitrust exemption, the court also was unconvinced by the Board’s other argument that the "particular anticompetitive acts" being challenged were approved by the state. The court noted that "the cease-and-desist letters were sent without state oversight and without the required judicial authorization."

The court then went on to affirm the FTC’s other findings that (1) the Board has the capacity to conspire under § 1 of the Sherman Act; (2) the Board’s members are separate economic actors who cannot escape liability under § 1 of the Sherman Act by organizing under a "single umbrella"; (3) the Board engaged in a combination or conspiracy under § 1 of the Sherman Act; (4) the Board’s behavior was likely to cause significant anticompetitive harms, because "[i]t is not difficult to understand that forcing low-cost teeth-whitening providers from the market has a tendency to increase a consumer’s price for that service"; and (5) the Board’s behavior violated § 1 of the Sherman Act.

So, what does the court’s decision mean for dental boards in other states? The court answered that question when it said, "if the Board was actively supervised by the State, it would be entitled" to an antitrust exemption under the "state action" doctrine. But dentists and other healthcare professionals should be mindful of the FTC’s continuing enforcement initiative to identify and challenge conduct at the outer bounds of the state action doctrine and to prevent professional organizations from using that doctrine to build competitive obstacles to nonprofessional providers.

If you have any questions regarding this matter, or would like to learn more about our antitrust capabilities, please contact Jonathan L. Lewis, or 202.861.1557; or Lee H. Simowitz, or 202.861.1608.

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After 34 years, a federal district court in Florida has overturned a 1979 injunction which prevented the Centers for Medicare and Medicaid Services (CMS) from releasing to the public Medicare data related to physician billing and payments.

In 1978, the Florida Medical Association (FMA) and several individual physicians filed suit against the U.S. Department of Health, Education and Welfare (now Health and Human Services (HHS)) to enjoin the release of annual Medicare reimbursement paid to individual physicians. The plaintiffs alleged that the release of such data would violate the Freedom of Information Act (FOIA), the Privacy Act of 1974 (Privacy Act), 18 U.S.C. § 1905 (Trade Secrets Act) and the U.S. Constitution. In 1979, the district court permanently enjoined HHS "from disclosing any list of annual Medicare reimbursements [sic] amounts, for any years, which would personally and individually identify those providers of services under the Medicare program."

The court, at the time, found that disclosure of Medicare payment information that included information individually identifying physicians was exempt from FOIA's mandatory disclosure requirement under FOIA Exemption 6. Exemption 6 permits an agency to withhold disclosure of "personnel and medical files and similar files" that "would constitute a clearly unwarranted invasion of privacy." Because the physician reimbursement was determined to fall within Exemption 6, the Privacy Act prohibited disclosure of the information without the "prior written consent" of each physician. Several courts have also upheld HHS's refusal to disclose information regarding physician reimbursement under the Privacy Act.

The U.S. District Court for the Middle District of Florida overturned its prior order based upon changes in the law and factual circumstances. First, the court held that the interpretation of the Privacy Act upon which the 1979 injunction was based is "no longer good law," and therefore the injunction "rests upon a legal principle that can no longer be sustained." Specifically, the court found that the scope of the injunctive relief available under the Privacy Act no longer permits injunctions against future disclosures of information. This was a considerable change from the interpretation of the law in effect at the time the injunction was issued. The court held that a significant change in the interpretation of the Privacy Act rendered "continued enforcement of the 1979 FMA Injunction inequitable and detrimental to the public interest." The dissolution of the injunction, however, will not result in the automatic release of the data.

Individuals desiring the physician payment data will have to file the FOIA requests to access the data, and HHS then will be forced to decide whether the data is exempt from release under the FOIA. HHS historically has maintained that individually identifiable physician payment data should not be released under FOIA Exemption 6.

In addition, the American Medical Association (AMA), which continues to oppose the release of physician payment data, is likely to appeal the ruling, thereby slowing the release of information. The AMA's concern could be heightened if the Medicare data will be used to rank doctors based solely on cost, does not employ risk adjustment measures to assure more accurate physician comparisons and does not provide prompt appeal mechanisms to verify and correct data believed inaccurate, as was the case with the insurer ranking systems the AMA has opposed over the past several years.

The court's ruling comes amid CMS's recent disclosure of hospital charge data for the 100 most common inpatient procedures and 30 outpatient procedures from hospitals across the country. In making the release, HHS Secretary Sebelius stated "[a] more data driven and transparent health care marketplace can help consumers and their families make important decisions about their care." Consequently, it remains to be seen how CMS responds to requests for physician payment data.

In addition to CMS's potential shift in position, it should be noted that after the court's ruling, Senators Chuck Grassley (R-Iowa) and Ron Wyden (D-Oreg.) indicated that they plan to reintroduce the Medicare Data Access for Transparency and Accountability Act (Medicare Data Act) in the U.S. Senate. The Medicate Data Act would require HHS to create searchable Medicare databases for public use and would specifically provide that information regarding Medicare payments to physicians would not be protected by an FOIA exemption.

Despite the uncertainty surrounding CMS's response to its newfound ability to release physician reimbursement data, providers should consider requesting data regarding the physicians in their markets to understand their own medical staff's medical practices more intimately, but perhaps more importantly, to obtain a much more in-depth understanding of their competitors' market position. This data also may assist accountable care organizations (ACOs) in identifying members to be included and perhaps members to be excluded as a result of their practices.

For more information, please contact Robert M. Wolin, or 713.646.1327; or Rhondee M. Damon, or 713.646.1321.

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On April 26, 2013, the U. S. Department of Justice (DOJ) intervened in a whistleblower case alleging Novartis Pharmaceuticals Corporation (Novartis) knowingly and willfully violated the federal FCA by inducing physicians to prescribe Novartis drugs in the form of payments to the physicians for speaking at programs that did not appear to be bona fide. The case was initiated by a Novartis sales representative who allegedly was directed by Novartis to engage in such improper conduct to increase physician prescriptions of its drugs. The DOJ's intervention occurred just days after it filed a separate case against Novartis, alleging Novartis provided kickbacks in the form of discounts and rebates to at least 20 pharmacies to induce them to switch thousands of transplant patients from competitor drugs to Novartis drugs.

The Physician Kickback Case

The DOJ alleged that from 2002 through 2011, Novartis paid outside physicians approximately $65 million to participate in more than 38,000 "speaker programs" that provided little or no educational benefit and were designed to induce referrals for three Novartis drugs. The DOJ's concerns with the speaker programs, included: (1) payments made to physician speakers for poorly attended (many programs took place with fewer than three healthcare professionals) or cancelled programs; (2) selection of lavish or inappropriate venues where the exchange of medical information would be difficult, such as fishing trips, meals at Hooters restaurants and dinners at upscale eateries, with some bills coming to more than $1,000 per attendee (few or no slides were shown at many of the programs); (3) the same speakers and attendees (many of whom were personal friends of the speaker (sometimes only members of the speaker's own medical practice attended)) discussing the same topic on multiple occasions, often within a short time period; (4) hiring unqualified physicians with ineffective communication skills to speak about the appropriate use of its drugs; (5) permitting Novartis's sales representatives to exercise considerable discretion in setting the amount of the physicians' payments; (6) Novartis's tracking of its return on investment (documenting increased attendee and speaker prescriptions for the drugs after the events); and (7) where compliance violations were identified, the corrective actions involving the employees were little more than "mere slaps on the wrist." In addition, according to the DOJ, the sales representatives would personally deliver the honorarium checks to further exercise influence.

The DOJ alleged that the physician payments were made to induce the physicians to write prescriptions for Novartis drugs, and such prescriptions were realized as a result of the payments. Indeed, the complaint alleges that in many cases the initial list of suggested speakers was generated by Novartis's marketing department. The DOJ further alleged that Novartis was aware that its speaker programs created opportunities for kickbacks to physicians and failed to develop sufficient controls to prevent the speaker programs from being used as a vehicle for kickbacks.

Effect of Current Corporate Integrity Agreement

Novartis has denied any wrongdoing in this matter and asserts that the speaker programs were designed to inform physicians about the appropriate use of its drugs and are customary and standard in the industry. In September 2010, Novartis entered into a settlement agreement with the DOJ and paid $422.5 million in penalties to settle an FCA claim based in part on violations of the anti-kickback statute due to illegal remuneration paid to physicians through a variety of mechanisms, including speaker programs. As part of the settlement Novartis signed a corporate integrity agreement (CIA) to implement a rigorous compliance program. The DOJ alleged that "[e]ven after entering into the [CIA], Novartis's compliance program failed to prevent kickbacks from being paid in conjunction with Novartis's speaker programs. No individual at the company was tasked with examining its speaker program data to determine whether the programs were used for an illegitimate purpose," as required under the CIA.

While the two pending cases are civil lawsuits, if Novartis is determined to have breached the existing CIA by continuing the illegal speaker programs, it may face exclusion from federal healthcare programs. Historically, the DOJ has not used exclusion against big pharmaceutical companies; however, the cases against Novartis cast some doubt on whether it has reformed its business practices with respect to kickbacks. If the DOJ opts to pursue exclusion, such reforms may be more forthcoming as a result of the government's initiative on combating healthcare fraud.

For more information, please contact Robert M. Wolin, or 713.646.1327; or Melissa A. Brown, or 713.646.139.

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Once again, the staff of the Federal Trade Commission (FTC) has rebutted calls by physician groups that state legislation is needed to allow independent physicians to collaborate. The FTC staff disputed the physicians' assertion that the antitrust laws are a barrier to the formation of efficient collaborations benefiting consumers. In support of legislation introduced in Connecticut, eight medical organizations representing more than 9,000 Connecticut physicians claimed that "federal antitrust laws prohibit Connecticut physicians from collective discussions about certain critical aspects of care coordination," including the kinds of negotiations necessary to form ACOs. "This premise," according to the FTC staff, "is simply and categorically wrong." The FTC submitted a letter to the Connecticut legislature urging the legislature to reject the legislation sought by the physicians.

Well before the passage of the Patient Protection and Affordable Care Act (ACA) and its introduction of Medicare's Shared Savings Programs, the FTC and DOJ (Antitrust Agencies) provided general guidance on collaborations among competitors, issued joint statements specifically geared toward the application of the antitrust laws to the healthcare industry, including physician network joint ventures and other provider collaborations, and made public opinion letters regarding the antitrust treatment of proposed healthcare collaborations. After the passage of the ACA, the federal Antitrust Agencies and CMS even worked together to develop policies that encourage participation in ACOs and ensure coordination among and between the agencies.

The Antitrust Agencies also released a joint statement explaining their enforcement policy approach to ACOs "to ensure that health care providers have the antitrust clarity and guidance needed to form procompetitive ACOs that participate in both Medicare and commercial markets." The Antitrust Agencies even established a process for ACOs to seek expedited review if they have concerns about antitrust risk. In April, for example, the Antitrust Agencies released a summary of their activities in this area, noting that they received two requests for voluntary expedited review and fielded more than thirty questions.

In the words of the FTC, "the antitrust laws do not stand in the way of health care providers in Connecticut" or elsewhere "who form ACOs or other collaborative arrangements that are likely to reduce costs and benefit health care consumers through improved efficiency and improved coordination of care."

Drawing on the experience of members of our healthcare team in complementary areas of health law, including transactions, tax, labor and employment and healthcare regulation, our team of antitrust lawyers have the depth and experience to handle the most significant antitrust healthcare matters. If you have any questions regarding this matter or would like to learn more about our healthcare antitrust capabilities, please contact Jonathan L. Lewis, or 202.861.1557; or Lee H. Simowitz, or 202.861.1608.

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Although the HIPAA Omnibus Final Rule's expansion of business associate liability could create difficulties for healthcare providers and other covered entities seeking to negotiate business associate agreements with vendors for the storage and maintenance of protected health information (PHI), cloud service providers (CSP) could be more receptive to such arrangements thanks to recent developments concerning Amazon Web Services (Amazon) and its relationship with HHS. Earlier this month, Amazon became the first CSP to achieve nonprovisional "authority to operate" status in the Federal Risk and Management Program (FedRAMP). FedRAMP, overseen by the General Services Administration, was established in December 2011 to provide a streamlined process across the federal government for identifying and certifying "secure, reliable, and cost-effective cloud options." Office of Management and Budget policy requires federal agencies, such as HHS, to use such services as a way of effectively managing IT where feasible. Amazon provides cloud services to HHS, including hosting of In order to achieve nonprovisional status, Amazon was required to undergo a third party security assessment and to receive HHS approval. Now that HHS and Amazon are working together, covered entities should find CSPs more receptive to entering into business associate agreements.

Should you have any questions regarding business associate agreements with CSPs or any other business associates, please contact Lynn Sessions, or 713.646.1352; or Michael R. Young, or 513.852.2639.

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June 19

New York partner Ted Kobus and Houston counsel Lynn Sessions will speak on "Anatomy of Health Care Data Breaches -- The Good, the Bad and the Almost Very Ugly" at the American Hospital Association Solutions Seminar in Houston, Texas.

Houston partner Scott McBride will speak on "Practical Strategies for Managing Medicare Audits and Appeals" at ANI: The 2013 HFMA National Institute in Orlando, Florida.

June 20

New York partner Ted Kobus and Houston counsel Lynn Sessions will speak on "Anatomy of Health Care Data Breaches -- The Good, the Bad and the Almost Very Ugly" at the American Hospital Association Solutions Seminar in Chicago, Illinois.

June 21

Houston counsel Lynn Sessions will speak on "HIPAA/HITECH Update and Best Practices in Privacy Protection and Mitigation" at the Association of American Medical Colleges Annual Meeting in Washington, D.C.

June 26

Houston counsel Lynn Sessions will speak on "Developing a Smartphone Policy for Healthcare Providers" during an audio conference sponsored by Lorman Education Services.
Cleveland counsel Tom Campanella will speak on "Hot Topics in Health Care Policy" at the quarterly meeting of the Health Care Financial Management Association of Northeast Ohio at Akron Children's Hospital in Akron, Ohio.

July 17

Houston counsel Lynn Sessions will speak on "Physician Integration: Claims Challenges & Best Practices" at the Willis Health Care Practice 17th Annual Forum in Chicago, Illinois.

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