HHS Announces $400,000 HIPAA Settlement with Community Health Center

The Department of Health and Human Services Office of Civil Rights (HHS OCR) recently settled with a notable covered entity – a nonprofit Federally Qualified Community Health Center (FQHC) – over alleged Health Information Portability and Accountability Act (HIPAA) Privacy and Security Rule violations.

With the FQHC agreeing to pay $400,000 to HHS and entering into a corrective action plan, this settlement highlights how long HHS OCR investigations can take (five years from investigation start to settlement); how broad HHS OCR targets are (FQHCs are not safe from scrutiny); and just how onerous corrective action can be after an investigation.

Our data privacy and cybersecurity team has prepared an excellent, detailed summary of the case, which may be found here.

Elephants in the Room: What is Next for Health Policy?

Health policy in the US is a problem in search of a solution and, despite a current pause in actions, reform efforts will continue this year.

The Squire Patton Boggs policy team has put together an excellent article recapping recent events regarding the actions torepeal and replace the Affordable Care Act (ACA) and the decision to pull new health reform legislation from the House Floor.The article also explores several potential paths forward, including actions involving the American Health Care Act (AHCA),bipartisan opportunities in reauthorizations of current programs, potential appropriations activities and executive branch actions.

A copy of this excellent article may be found here.

OIG Expands Anti-Kickback Statute and Civil Monetary Penalties Protections (Part 2)

As we discussed in a previous post, the Department of Health and Human Services Office of Inspector General (OIG) published a final rule (Final Rule) amending the safe harbors to the Anti-Kickback Statue (AKS) and also amending exceptions to the Civil Monetary Penalties rule (CMP), providing greater protection for certain arrangements with beneficiaries.

In this second part of our two-part series, we discuss the Final Rule’s changes to the CMP.

Expanded Protections for CMP Beneficiary Inducement

The Final Rule adds five new exceptions for beneficiary arrangements, incorporating these exceptions into the CMP’s definition of “remuneration.”

  1. Copayment Reductions for Certain Outpatient Department Services

The OIG proposed a cost-sharing exception permitting reduction in the copayment amount for some or all covered hospital outpatient department services to no less than 20% of the Medicare fee schedule in its Proposed Rule. This cost-sharing exception builds upon Section 4523 of the Balanced Budget Act of 1997 (the BBA), which prompted the Secretary of the Department of Health and Human Services to establish a copayment reduction procedure.  In the Final Rule, the OIG added the exception into the definition of “remuneration” using substantively identical language to the statutory language.

  1. Certain Remuneration That Poses a Low Risk of Harm and Promotes Access to Care

The Final Rule adds a new interpretive exception that aligns with an existing statutory exception protecting “any other remuneration which promotes access to care and poses a low risk of harm to patients and Federal health care programs.” The OIG noted that “[t]his exception should be read in the context of more specific exceptions and safe harbors,” and it would look to those exceptions “to determine if remuneration poses a low risk of harm.” Certain arrangements that do not meet the exceptions for a safe harbor or exception may be protected under this exception. Any entity asserting such protection for its arrangements has the burden of demonstrating sufficient facts and analysis for the OIG to determine that the arrangement fits within the exception.

This exception builds off of specific aspects of the statutory language. The OIG defined “care” to mean items and services that are payable by Medicare, Medicaid or a state health program, but does not include a medically necessary qualifier. The OIG defined “promotes access” to limit the exception to only remuneration that “improves a particular beneficiary’s ability to obtain medically necessary items and services” for a defined beneficiary population, but not on an individual patient-by-patient basis. The OIG clarified that its interpretation of items or services that “promote access to care” captures giving patients the opportunities to remove socioeconomic, education and other barriers to access necessary care; while excluding items or services that purely reward patients for accessing care. Furthermore, remuneration associated with a coordinated care arrangement that meets the requirement of being low risk and assists patients to access necessary care can fit within this exception.

In addition to promoting access to care, remuneration must pose a low risk of harm to federal healthcare programs for protection under this exception. The OIG finalized its proposed interpretation of a “low risk of harm to Medicare and Medicaid beneficiaries and Medicare and Medicaid program” to mean that the remuneration must: “(1) be unlikely to interfere with, or skew, clinical decision-making; (2) be unlikely to increase costs to Federal health care programs or beneficiaries through overutilization or inappropriate utilization; and (3) not raise patient-safety or quality-of-care concerns.” In its commentary, the OIG cautioned that certain forms of remuneration (such as cash, cash equivalents and copayment waivers) and, specifically, remuneration provided in connection with marketing, are unlikely to be considered by the OIG to be low risk.

  1. Retailer Rewards

The OIG adopted the ACA’s statutory text creating an exception to the beneficiary inducements provisions of the CMP for retailer rewards programs that meet certain criteria. A retailer rewards program may offer or transfer items for free or less than fair market value if: (a) the items or services consist of coupons, rebates or other rewards from a retailer; (b) the items or services are offered or transferred on equal terms available to the general public, regardless of health insurance status; and (c) the offer or transfer of the items or services is not tied to the provision of other items or services reimbursed in whole or in part by Medicare or a state health program.

The OIG interprets “retailers” to be entities “that sell [ ] items directly to consumers . . . [and do not] primarily provide services,” including both big-box stores with pharmacies and smaller, independent pharmacies. These retailers may offer rewards that must not be copayment waivers. Additionally, these rewards must be available to everyone regardless of health insurance status, and must not be tied to the provision of items or services reimbursed by Medicare or a state healthcare program. For example, a reward of a $20 coupon that could be used on anything in the store would be eligible for protection, whereas a reward of federally reimbursable items stemming from the purchase of federally reimbursable items would not.

  1. Remuneration to Financially Needy Individuals

The Final Rule incorporates a third new statutory provision that excepts from the definition of “remuneration” the offer or transfer of items or services for free or less than fair market value if the following requirements are met: (a) the items and services are not advertised or tied to the provision of other items or services reimbursed by the Medicare or state healthcare programs (including Medicaid); (b) there is a reasonable connection between the items or services and the medical care of the individual; and (c) the recipient has been determined to be in financial need.

This exception, like others, does not impose any affirmative obligations on providers or suppliers to provide free items or services, waive copayments or implement any program that involves giving anything of value to beneficiaries; rather, this exception describes the circumstances under which such gifts or benefits are not prohibited by the beneficiary inducements CMP.

  1. Copayment Waivers for the First Fill of Generic Drugs

The OIG adopts another ACA statutory provision excepting from the definition of “remuneration” the waiver by a Part D Plan sponsor of any copayment for the first fill of a covered Part D drug. The OIG states that the purpose of this exception is to “minimize drug costs by encouraging the use of lower cost generic drugs.” The Part D Plan sponsor must include the waiver in its annual benefit design package it submits to CMS if the sponsor will use it. This exception is applicable to coverage years beginning on or after January 1, 2018.

Conclusion

While the AKS and CMP are often viewed by the healthcare and life science industries as impediments to improving the efficiency and innovation of healthcare delivery, the OIG in its Final Rule liberalizes those requirements by enhancing the flexibility of healthcare providers to engage in business arrangements that improve access to care, while still protecting federal programs and patients from fraud and abuse. In an environment where value-based reimbursement models and population health initiatives are the growing norm, the AKS and CMP exceptions under the Final Rule encourage hospitals, pharmacies, ambulance providers, Medicare Advantage Plans and FQHCs to collaborate and strategize among each other on efforts to better serve beneficiaries, members and patients alike.

House Ways and Means Committee Approves Revenue Provisions Relating to Proposed Repeal and Replacement of the Affordable Care Act

The House Ways and Means Committee approved legislation that would repeal the taxes enacted to fund the Affordable Care Act, and defer for five years the “Cadillac tax” on expensive health insurance policies. It also approved eliminating the penalty tax for not having health insurance, adopting a new refundable credit to help Americans pay for health insurance, and making revisions in tax law relating to health savings accounts and flexible savings accounts, including changes that adversely affect the treatment of health insurance plans that pay for abortions.

Our in-depth discussion of the proposed legislation may be found here.

OIG Expands Anti-Kickback Statute and Civil Monetary Penalties Protections

Late last year, the Department of Health and Human Services Office of the Inspector General (OIG) published a final rule (Final Rule) that amends the safe harbors to the federal Anti-Kickback Statute (AKS) by modifying an existing safe harbor, adding new safe harbors and codifying existing statutory provisions that provide further protections from sanctions under the AKS with respect to certain payment practices and business arrangements. The Final Rule also amends the exceptions to the civil monetary penalty rule (CMP) regarding beneficiary inducements by codifying revisions to the definition of “remuneration” added by the Balanced Budget Act of 1997 and the Patient Protection and Affordable Care Act, as amended (ACA).

Part one of this two-part series discusses the Final Rule’s changes to the AKS.  In the second installment, we will discuss the Final Rule’s changes to the CMP.

Expansion of AKS Safe Harbors

Protection for Cost-Sharing Waivers

The Final Rule significantly amends the existing safe harbor for waiver of beneficiary coinsurance and deductible amounts to create protection for  reducing or waiving a beneficiary’s copayment, coinsurance or deductible (collectively “cost-sharing”) amounts owed to a pharmacy or ambulance provider, subject to certain standards.

Pharmacy Cost-Sharing Waivers for Financially Needy Beneficiaries

Under the Final Rule, a pharmacy may reduce or waive the cost sharing amounts imposed under a federal healthcare program if the waiver or reduction meets the following standards: (i) the waiver or reduction is not offered as part of an advertisement or solicitation; (ii) the pharmacy does not routinely waive or reduce cost-sharing amounts; and (iii) the pharmacy waives the cost-sharing amount only after (a) determining in good-faith that the individual is either in financial need or (b) fails to collect the cost-sharing amount after making reasonable collection efforts.

The OIG declined to provide guidance on the number of cost sharing waivers that would be considered “routine,” and therefore, problematic. As pharmacies serve many different communities, including those with subsidy-eligible beneficiaries that are exempt from the prohibition against routine waivers, the OIG stated that it will neither mandate nor prohibit protocols to determine the number of waivers or reductions that pharmacies may develop to meet the safe harbor requirements. The OIG also declined to mandate specific guidelines for a pharmacy’s good faith determination of financial need, but emphasized that the guideline a pharmacy adopts must be reasonable and applied uniformly when performing the financial need assessment. Additionally, the OIG emphasized that a pharmacy must make an effort to collect the cost-sharing amounts. While the copayment amount or the “historical inability” to collect for a particular beneficiary may be “factors that are considered in determining what reasonable collection efforts are,” the pharmacy may not forego all collection efforts and must attempt to collect the cost-sharing amount.

Cost-Sharing Waivers or Reductions for Emergency Ambulance Services

The Final Rule also created a safe harbor related to ambulance services, a frequent topic of OIG Advisory Opinions. Specifically, this safe harbor permits coinsurance/deductible waivers or cost-sharing reductions by ambulance service providers for which Medicare pays under a fee-for-service payment system. The waiver or reduction of such cost sharing responsibilities by an ambulance provider in connection with “emergency ambulance services” falls within the protection of this newly established safe harbor so long as the ambulance provider: (1) is owned and operated by a state, a political subdivision of a state or a tribal health organization; (2) is enrolled as a Medicare Part B provider of the emergency ambulance services; (3) offers the waiver or reduction of cost-sharing amounts in a uniform manner to all individuals; and (4) does not later claim the amount reduced or waived as bad debt or otherwise shift the burden to Medicare, a state healthcare program, other payers or individuals. Importantly, the safe harbor only applies to emergency services, and privately owned ambulance providers do not qualify for safe harbor protection.

Protected Remuneration between FQHCs and Medicare Advantage Organizations

The OIG adopted a regulatory safe harbor to protect any remuneration between an FQHC (or an entity controlled by an FQHC) and an MA organization pursuant to a written agreement that meets certain statutory requirements. The statutory payment rule guarantees an FQHC a payment amount that at a minimum equals the amount the MA organization would make to a non-FQHC entity. Consistent with statutes, the safe harbor only protects payments related to an FQHC’s treatment of MA organization enrollees and does not include a fair market value requirement.

Protection for Discounts provided by Manufacturers on Drugs Furnished to Beneficiaries under the Medicare Coverage Gap Discount Program

The OIG also added safe harbor protection for drug price discounts when the discount is furnished to a beneficiary under the Medicare Coverage Gap Discount program established under the ACA. Under the Medicare Coverage Gap Discount, a manufacturer may offer discounts on drugs at the point of sale to an “applicable beneficiary” for an “applicable drug,” and the drug manufacturer participates in, and is in compliance with, the requirements of the Medicare Coverage Gap Discount Program.  An “applicable beneficiary” is an individual who, subject to a number of exclusions, has reached or exceeded the initial coverage limit for prescribed drugs, has not incurred costs for covered drugs in the year equal to the annual out-of-pocket threshold. An ‘‘applicable drug’’ is a part D drug or licensed biologic, available to an applicable beneficiary through an applicable formulary or provided through an exception or appeal.  OIG included these self-implementing statutory exceptions in its rulemaking for completeness.

Free or Discounted Local Transportation

The Final Rule also allows “eligible entities” to provide free or discounted local transportation to federal healthcare program beneficiaries to “established patients” in order to obtain medically necessary items or services so long as the eligible entities comply with the conditions of the regulation.

Under this new safe harbor, an “eligible entity” is any individual or entity, except individuals or entities that primarily supply healthcare items, like durable medical equipment suppliers or pharmaceutical companies.

The safe harbor protects round trip transportation from a patient’s home to a provider or supplier of services as long as the following conditions are met: (a) the eligible entity has a set policy regarding the availability of free  or discounted local transportation assistance, the policy is applied uniformly and consistently, and availability is not determined in a manner related to the past or anticipated volume or value of federal healthcare program business; (b) the mode of transportation cannot include air, luxury and ambulance-level transportation; (c) the transportation assistance cannot be publicly advertised or marketed to patients or others who are potential referral sources, marketing of healthcare items or services cannot occur during the course of the transportation, and drivers or others involved in arranging the transportation cannot be paid on a per-beneficiary-transported basis; (d) the eligible entity is prohibited from shifting the associated costs to Medicare, a state healthcare program, other payers or individuals; (e) the individual receiving the transportation benefit is an “established patient” of the eligible entity; and (f) the distance one-way traveled is no more than 25 miles from the healthcare provider or supplier, or 50 miles if the patient resides in a rural area.

A patient is considered to be an “established patient” for purposes of this safe harbor after he or she selects and initiates contact with a provider or supplier to schedule an appointment (e.g., telephone call). This differs from the standard under the Proposed Rule, where only patients who had selected a provider or supplier and had attended an appointment with the provider or supplier were deemed to be “established.” Because the eligible entity is not permitted to market the transportation services, OIG believes that making transportation available to new patients who contact the provider or supplier on their own initiative is sufficiently low risk to warrant safe harbor protection.

The OIG clarified that an eligible entity offering free or discounted local transportation need not require transportation to be planned in advance. Further, a transportation program can use vouchers rather than having the transportation provided directly by the eligible entity in the form of a shuttle service (discussed below) or other mode of transportation.

The safe harbor also protects the offering of a shuttle service by eligible entities. The term “shuttle” refers to a vehicle (except for air, luxury or ambulance) that runs on a set route and on a set schedule. Of note, the “established patient” requirement does not apply to shuttle services. However, shuttle transportation must remain “local,” meaning that there are no more than 25 miles between any stop on the route and any stop at a location where healthcare items or services are provided, or within 50 miles if the patient resides in a rural area. The marketing prohibitions also apply to shuttle services, except that the shuttle schedule and stops may be posted in public. All of the remaining requirements of the safe harbor (e.g., eligible entity requirements, other marketing restrictions and the prohibition on cost-shifting) apply to shuttle service offerings.

Technical Correction to Referral Safe Harbor

As a technical correction, the OIG finalized an amendment to the second standard of the referral service safe harbor to clarify that any payments participants make to the referral service must not be based on “the volume or value of any referrals to or business otherwise generated by either party for the other party . . . .” The prior language “for the referral service” may have supported an ambiguous interpretation that referral services may adjust their fees on the basis of the volume of referrals made to participants.

While the Final Rules’ provisions do not, on balance, appear to present a major change to the AKS, they do reflect a trend toward expanding the safe harbors and exceptions available under relevant fraud and abuse laws.

Will Verdict Encourage Counsel To Become Healthcare Relators?

Last week a jury awarded millions of dollars to a former General Counsel who brought a whistleblower retaliation lawsuit against a life sciences company. (Verdict form here.) Does that verdict warn the health care industry to brace for a wave of False Claims Act (FCA) litigation brought by in house counsel who have turned relators? Certainly not.

General Counsel brought the retaliation lawsuit under the Sarbanes-Oxley Act regarding possible violation of the Foreign Corrupt Practices Act that had been presented to the company’s Audit Committee. (Factual background of the litigation here). The company’s internal investigation disclosed no violation, but the General Counsel claimed he was fired in retaliation for raising it. During the retaliation litigation, the district court allowed General Counsel to disclose matters covered by the attorney client privilege. The court concluded that the company’s actions in defending against retaliation claims had waived the attorney-client privilege in several ways and that the whistleblower protections of Sarbanes-Oxley preempted state ethics rules preventing disclosure.

This verdict is not the harbinger of counsel/whistleblower complaints even though the FCA allows “[a] person” to file suit without further limitation as to who may file. (31 U.S.C. §3730 (b)(1))

The primary reason we will not see a wave of counsel relators is that both in house and outside counsel take seriously their ethical responsibility to protect client confidences. While an occasional attorney may try to profit by publically exposing a client’s woes, there is no reason to expect a large number of professionals will abandon the tradition of zealously representing their clients in difficult situations. Furthermore, companies recognize the importance of remedying misconduct when it is discovered. Counsel is unlikely to seek an outside remedy when the client heeds advice that improvements need to be made.

Even when a counsel tries to become a relator in a false claims action, the legal profession is likely to intervene to protect the privilege. In United States  v. Quest Diagnostics, Inc., 734 F.3d 154 (2nd Cir. 2013), the Second Circuit upheld the District Court’s decision to dismiss the counsel/relator, co-relators and outside counsel representing them from the lawsuit because counsel unnecessarily revealed client confidences when becoming a relator. Because the decision was based upon counsel’s ethical violation, it is the kind of situation in which state bars are likely to impose sanctions as well.

Moreover, bringing a retaliation lawsuit is not the same as initiating a false claims action against a current or former client. The legal hurdles to introducing privileged information in an FCA action are daunting. Although the General Counsel could invoke Sarbanes-Oxley to permit some use of privileged information, the Second Circuit held that the FCA “does not preempt state ethical rules governing the disclosure of client confidences.” Id. at 168.

The ethical and practical realities surrounding false claims investigations will not be affected significantly by the jury’s finding of retaliation against the General Counsel.

 

 

 

 

 

Summary of FDA Statement on Laboratory Developed Tests Issued January 13, 2017

On January 13, 2017, the Food and Drug Administration (FDA) issued a discussion paper on laboratory developed tests (LDT) synthesizing the regulatory dialogue that FDA and stakeholders have had since 2010 and outlining future regulatory possibilities for LDTs.  FDA and a majority of stakeholders support a complimentary approach to regulating LDTs that combines FDA’s experience in pre- and post-market matters for medical devices themselves with the Centers for Medicare and Medicaid’s (CMS) experience in laboratories’ processes and procedures.

The discussion paper advances FDA’s points on the common points that have been brought up in the discussion for regulating LDTs and makes proposals for a future program.

Focused Oversight:  FDA’s oversight over LDTs would be focused on new and significantly modified LDTs, “grandfathering” existing LDTs to a certain extent.  FDA submits that it would need to retain its enforcement capabilities for all LDTs that are unsafe, clinically invalid, or deceptively promoted.

Risk-Based, Phased-In Oversight:  FDA proposes a four-year phase-in for regulating LDTs, focusing first on the LDTs for which the consequences of a false result have the highest risk to the patient.  FDA recognizes that applying the Quality System Regulation could be new for many laboratories, and forwards an additional two years for laboratories to comply with the applicable quality system requirements.

Evidence Standards:  FDA asserts that its validation and evidence requirements for clinical validity would complement, instead of duplicate, CMS’ validation and evidence requirements for clinical utility.  While the CMS’ requirements do not confirm whether an LDT’s results are sufficient to confirm its claimed intended use, “laboratories that already conduct proper validation should not experience new costs for validating their test to support marketing authorization.”

Third Party Review:  FDA proposes to expand its third party premarket review program to accredit clinical laboratories to review eligible LDTs.

Clinical Collaboratives:  FDA will expand its collaborative work with the clinical community to develop measurement, review, and clinical validity standards to ensure the quality and consistency of LDTs.

Transparency:  FDA proposes to make public the analytical and clinical validity evidence of all LDTs so that the public can understand the test performance and how it is derived.

Modifications:  FDA submits that laboratories should submit prospective change protocols in premarket submissions that outline specific anticipated significant changes, the procedures that will be followed to implement those changes, and the criteria that will be met prior to implementation.

CLIA Quality System Requirements:  Acknowledging that many laboratories already operate a quality system, FDA proposes to leverage laboratories’ already-existing certification requirements, augmenting them with three FDA-specific quality system requirements that are not duplicated by other programs: design controls, acceptance activities, and procedures for corrective and preventive actions.

Postmarket Surveillance:  FDA proposes comprehensive postmarket surveillance steps for LDTs in light of the phases for pre-market clearance and approval for many LDTs.  FDA states that initially, laboratories would report serious adverse events for almost all LDTs, gradually stepping down surveillance as more evidence becomes available.

 

HHS OIG Issues Another Regulation On Eve of Inauguration

On January 11, 2017, the U.S. Department of Health and Human Services Office of Inspector General (“OIG”) issued a final rule explaining new policies for excluding individuals and entities from participation in federal health care programs.  The final rule reflects amendments to the agency’s exclusion authorities made by the Affordable Care Act in 2010 and the Medicare Modernization Act in 2003.

The new regulation follows the two final rules that the agency issued on December 6, 2016 with respect to the Anti-Kickback Statute and Civil Monetary Penalties and in the face of requests from House and Senate Republicans to refrain from issuing any new regulations in the final days of the Obama administration.

The final rule presents many notable changes to the exclusion regulations.  First, the OIG announced that exclusions will only apply to misconduct from the past ten years.  Thus, the OIG may not revoke billing privileges as punishment for all wrongdoing, no matter how old.  Through this change, the OIG responded to the strong opposition it received against an unlimited statute of limitations.  Commenters pointed out that failing to provide a set time limit would leave providers subject to exclusion long after the underlying violation was resolved.  By setting the ten-year period, the OIG also acknowledged the “courts’ historical favoring of an enumerated limitations period.”

The final rule also establishes an early reinstatement process for providers that were excluded after losing their health care licenses for reasons including lapses in professional competence, professional performance, or financial integrity.  Previously, these providers could not be reinstated until the lost license was restored.  Under the final rule, however, the providers may apply for early reinstatement if they obtain or are permitted to retain a healthcare license in another state or retain a different healthcare license in the same state, or if they do not have a valid healthcare license but can demonstrate that they would no longer pose a threat to federal healthcare programs.  While providers who apply for early reinstatement must overcome a presumption against reinstatement that applies to the first three years after the loss of licensure, the three-year period is down from five years as suggested in the proposed rule.

The OIG also increased the amount that federal healthcare programs would have to lose in order for the loss to be considered an aggravating factor in determining how long the exclusion should last.  While in the proposed rule, the OIG suggested that the loss to federal healthcare programs would have to be no more than $15,000 in order to become an aggravating factor, the final rule set the amount at $50,000 in several scenarios.  This change addressed comments stating that $15,000 was too small an amount to warrant more severe punishment.  The final rule also removed a mitigating factor relating to the availability of alternative healthcare services furnished by the excluded provider (i.e., the fact that the patient’s access to care would be significantly harmed by exclusion of the provider no longer serves as a mitigating factor).  The patient’s access to care will still be considered in determining whether exclusion is appropriate, but it will be an “all-or-nothing” factor, rather than one that reduces the duration of exclusion.

Finally, the rule allows the OIG to exclude individuals who hold ownership or control interests in excluded entities.  It also allows exclusion of anyone convicted of a crime in connection with obstruction of certain investigations or audits.

Due to the timing of the issuance of this final rule, its long-term impact under the new administration is yet to be determined.  For example, while the final rule establishes new policies for excluding individuals and entities from participation in federal health care programs, it also amends definitions to clarify that a person or entity has “furnished” an item or service when the person or entity submits a claim or requests or receives payment.  While the clarification was merely intended to address “situations in which payment is made by a Federal health care program without a traditional fee-for-service claim, i.e., where the program makes payments through some other mechanism,” it’s possible that the agency may cite the revised definitions to further broaden it exclusion authorities.

FDA Issues Guidance for Classification Pathways for New Accessory Types

Accessories to medical devices play an integral role for their parent medical devices, supporting or adding to the parent device’s functionality.  Accessories historically took the classification of the parent device, except in cases where the Food and Drug Administration (“FDA”) classified the accessory in its own right.    The 21st Century Cures Act, passed into law on December 13, 2016, directed FDA “to classify an accessory based on the intended use of the accessory, notwithstanding the classification of any other device with which such accessory is intended to be used.”  To this end, FDA published a Guidance Document, Medical Device Accessories – Describing Accessories and Classification Pathway for New Accessory Types, that describes how FDA intends to classify new accessory types.

Accessory Classification Policy

FDA will determine an accessory’s classification by applying the same risk and regulatory control-based criteria that it currently does for other medical devices, according to the Accessory Classification Policy outlined in the Guidance Document.  FDA considers an accessory’s risks to be those it presents when used with the corresponding parent device, when used as intended.  FDA asks two questions to assess the accessory’s risk.

Is the article an accessory?  To determine whether a product is an accessory, FDA examines whether the product is intended for use with one or more parent devices, and whether it is intended to support, supplement, and/or augment the performance of the parent device.    An accessory should be intended for use with one or more specific parent devices. Equipment such as an off-the-shelf computer monitor would not be an accessory unless it is specifically intended for use with a medical device.  Such products may not be independently classified if they are not accessories to medical devices.

What are the risks of the accessory when used as intended with the parent device(s) and what regulatory controls are necessary to provide a reasonable assurance of its safety and effectiveness?  To answer this question, FDA intends to evaluate the risks imposed by the accessory’s impact on the parent device and any unique risks of the accessory independent of the parent device.  Not all risks of the parent device are imputed to the accessory, and likewise, the accessory may pose a different set of risks that the parent device may mitigate.

Next Steps

FDA recommends new accessory type manufacturers to use the de novo classification process at Section 513(f)(2) of the Food, Drug, and Cosmetic Act to request classifications for the new types of accessories.  Accessories that are already classified by an existing classification regulation or that are the subject of an already-approved PMA or 510(k) are not new accessory types, and need not be reclassified at this point in time.  Appendix 1 in the Guidance Document includes the information that FDA recommends accompany the de novo request for a new type of accessory.

Court Rejects HHS’s Plea to Rescind Order to End Medicare Appeals Backlog

As reported last month, the US District Court for the District of Columbia issued an order in American Hospital Association v. Burwell for the US Department of Health and Human Services (HHS) to clear the enormous backlog of Medicare appeals at the administrative law judge (ALJ) level. US District Court Judge James E. Boasberg gave HHS a four-year runway to eliminate the backlog of almost one million appeals at the ALJ level.

HHS’s first move was to ask Judge Boasberg to reconsider and to rescind his order. HHS contended that “the decision to order scheduled reductions in the appeals backlog will force [HHS] to pay pending claims without regard to their merit ….” The court rejected this argument, as it had already been presented by HHS and considered by the court in reaching its order. The court stated that it “is not unsympathetic to [HHS’s] plight, nor does it take lightly the decision to intervene in an executive agency’s efforts to respond to a complex problem.” Nevertheless, the court concluded it was bound by the instructions of the DC Circuit in a prior appeal of the matter and concluded “that equitable grounds existed” for the court’s order “and that the reductions timetable was the most appropriate form of such relief.”

It remains to be seen whether HHS will appeal the court’s decision. If it does not, this will end the long-running controversy and start bringing long-overdue relief to providers. The possible raft of appeals being rapidly decided still presents many issues, not the least of which is the extent to which interest will be due upon underpayments determined in successful appeals.

If you would like to discuss any of the details or implications of this matter for your business, please speak to one of the individuals listed in this publication or your usual contact at the firm.

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