Hospital Court Victories Trigger CMS to Walk-Back Rule Lowering Caps on Medicaid DSH Payments

The Centers for Medicare and Medicaid Services (CMS) has withdrawn a controversial policy, first introduced in 2010, which changes how much a Medicaid disproportionate share hospital (DSH) may receive annually in supplemental DSH payments. CMS took this action in response to several court rulings invalidating the agency’s policy. Despite the agency’s walk-back of its policy, hospitals should review their historical Medicaid DSH payments to ensure that they were calculated correctly. Continue Reading

CMS Proposes to Lower Drug Prices and Reduce Out-of-Pocket Drug Spending with Respect to Medicare Coverage

On Friday, November 30, 2018, the US Centers for Medicare & Medicaid Services (CMS) issued a proposed rule (Proposed Rule) to revise Medicare Part D (Part D) and Medicare Advantage (MA) regulations to promote health plan negotiation of lower drug prices and to reduce out-of-pocket spending for enrollees. The Proposed Rule contains four areas of reform focusing on: (1) Plan Flexibility for Coverage of Protected Class Drugs; (2) Real-Time Coverage and Cost Information for Prescribers; (3) Step Therapy by MA Plans for Part B Drugs; and (4) Drug Price Adjustment at Point-of-Sale based on Pharmacy Price Concessions.  You can read more about this here.

Health Care Fraud Leads $2.8 Billion Collected for False Claims

The federal government’s civil recoveries for false claims during FY2018 topped $2.8 billion. Health care fraud claims lead the collection.

Government Rakes in Billions

The Department of Justice (DOJ) recently released statistics for its civil False Claims Act (“FCA”) recoveries during FY2018.   Although that total is lower than in some previous years, the trajectory of recoveries for false claims has risen relentlessly since 1986. The total federal recovery since then exceeds $59 billion. The DOJ also states that it “was instrumental in recovering additional millions of dollars for state Medicaid programs” last fiscal year.

Health Care Fraud Leads Recoveries  

During FY2018 health care fraud recoveries accounted for more than $2.5 billion of the total. This is the ninth consecutive year that health care fraud recoveries have exceeded $2 billion. According to the DOJ, recoveries involved a range of players in the health care industry, “including drug and medical device manufacturers, managed care providers, hospitals, pharmacies, hospice organizations, laboratories, and physicians.”  The DOJ stated that the “largest recoveries involving the health care industry this past year came from the drug and medical device industry.”

DOJ Statistics

The DOJ provided statistics on: (1) the number of new matters (both non qui tam and qui tam); (2) the amounts of settlements and judgments for both non qui tam and qui tam cases (with a further breakdown of the size of the recovery when the U.S. government intervened or otherwise pursued the matter); and (3) the relator’s share of awards, including a breakdown for when the U.S. government intervened. The statistics also provide numbers stretching back to 1986, when Congress amended the FCA to further encourage the use of qui tam actions that allow private citizens (“relators”) to bring lawsuits on behalf of the U.S. alleging fraud upon the government.

Qui Tam Remains Strong

In FY2018, qui tam actions accounted for more than $2.1 billion of the more than $2.8 billion in recoveries. Moreover, of the 767 new false claims actions revealed, 645 were qui tam actions. The Department of Health and Human Services had the vast majority of new qui tam matters, with the DOJ reporting 446 cases in FY2018. The DOJ also reported 35 new qui tam cases involving the Department of Defense. (The exact number actually filed cannot be determined because qui tam actions remain under seal initially and may remain sealed beyond the fiscal year.) Growth of qui tam actions is likely to remain strong in the future because relators received approximately $300 million in FY2018 as incentives for identifying fraudulent activities.

DOJ Recommends Continued Vigilance

Assistant Attorney General Jody Hunt, when announcing the 2018 statistics, said: “The Department of Justice has placed a high priority on rooting out and pursuing those who cheat government programs for their own gain. The recoveries announced today are a message that fraud and dishonesty will not be tolerated.” Entities and persons—as the DOJ noted that in 2018 it continued its commitment to deter fraud by individuals as well as corporations—should continue to monitor FCA case law, settlements, and judgments to understand the type of behavior and actions that may expose them to liability under the FCA.

Federal Court Held HHS Lacks the Authority to Impose Dramatic 340B Reimbursement Rate Reduction

On December 27, 2018, the provider community scored a major victory when the U.S. District Court for the District of Columbia held that the Medicare statute did not authorize the Department of Health and Human Services (“HHS”) to impose a nearly 30% reduction in 340B Reimbursement rates. The legal implications of this decision may be far reaching as the court held for the first time that HHS “acted outside of [its] authority to make adjustments to any Medicare reimbursement rates.” AHA v. Azar, 1:18-cv-02084-RC, ECF No. 25, at 27 (Dec. 27, 2018). However, the exact practical implications are still to be determined as the court ordered further briefing on the appropriate scope of relief. Id. at 36.

Providers participating in the 340B Program have traditionally purchased 340B drugs at steeply discounted rates, and when those hospitals prescribe the 340B drugs to Medicare beneficiaries, HHS reimbursed them at a much higher rate. Providers have relied on this gap between the purchase and reimbursement price to help them provide critical services to their communities, especially the underserved populations. However, HHS views the gap as “profit margin” that may lead to unnecessary utilization and potential overutilization of these 340B drugs.

As previously reported, in November 2017, HHS’s final Medicare hospital Outpatient Prospective Payment System (“OPPS”) for federal fiscal year 2018 drastically reduced Medicare Part B payments to hospitals for separately payable drugs purchased at a discount through the 340B Program. 82 Fed. Reg. at 52,362. Prior to this change, HHS paid hospitals the Average Sales Price (“ASP”) plus 6% for a separately payable drugs (ASP plus 6%). For 2018, HHS paid hospitals ASP minus 22.5% for separately payable drugs purchased through the 340B Program. The provider community strongly opposed this, which reduced payments to 340B hospitals by an estimated US$1.6 billion for calendar year 2018.

After the regulation became effective, numerous non-profit hospitals and hospital associations challenged HHS’s reduction in court, arguing principally that HHS exceeded its statutory authority in implementing this dramatic cut. The court agreed with the hospitals. When HHS changed “the formula from the statutory default of ASP plus 6% to ASP minus 22.5%, [HHS imposed] a nearly 30% reduction from the formula that Congress expressly set as the standard.” AHA v. Azar, at 27-28. Thus, “the rate reduction’s magnitude and its wide applicability inexorably lead to the conclusion that the Secretary fundamentally altered the statutory scheme established by Congress for determining [certain separately payable drugs] reimbursement rates, thereby exceeding the Secretary’s authority” to adjust such rates under the statute. Id. at 28.

This opinion is significant from a legal perspective for two reasons: first, the court excused the plaintiffs for skipping the lengthy administrative process because going through it would have been futile. Id. at 19. If affirmed, this will open the door for future pure legal challenges to skip the administrative process as long as they only question the scope of the agency’s statutory authority. Second, this is the first time that HHS was found to have “acted outside of [its] authority to make adjustments to any Medicare reimbursement rates.” Id. at 27. The court rejected the argument that Congress granted HHS boundless discretion by shielding its Medicare rate adjustment decisions from judicial review. Instead, the court found the term “adjustment” imposed limitations on HHS’s authority. Because HHS’s purported “adjustment” was so drastic that it “fundamentally altered the statutory scheme established by Congress”, it was, “in fact, an ultra vires act (i.e. a patent violation of his authority).” Id. at 26-27

Acknowledging that the plaintiffs are “entitled to some relief, the potential drastic impact of this Court’s decision on Medicare’s complex administration [gave] the Court pause.” Id.at 2 (emphasis in original). Because the budget neutrality requirement under Medicare Part B meant HHS already reallocated billions from the 340B Program to other drugs and services, retroactively increasing 340B reimbursement rates now would require HHS to reduce reimbursements elsewhere in the program. This presents “a quagmire that may be impossible to navigate . . . .” Id. at 35. Thus, the court asked for further briefing on the appropriate remedy.

We will continue to track this case through further briefing and during its likely appeal. We remind providers that they may want to preserve their ability to challenge 340B reimbursement reductions when filing their 2018 cost reports. Further, HHS has continued the 340B reimbursement rate reduction through 2019. 83 Fed. Reg. 58,818, 58,822 (Nov. 21, 2018). We expect similar challenges to the 2019 regulation.

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.

Cracks in the Façade—Supreme Court to Reconsider “Auer Deference” Rule and Possibly Shrink Agency Leeway In Interpreting Regulations

The playing field in a lawsuit challenging agency action is tilted toward the agency, largely by means of various deference doctrines. One of the most important has been deference to an agency’s interpretation of its own regulations. Courts have been deferring to those interpretations for decades, following a 1940s Supreme Court case, Bowles v. Seminole Rock & Sand Co.[1] The ground really shifted in 1997, when in Auer v. Robbins,[2] the Supreme Court said a court should generally defer to an agency’s interpretation developed for the first time in court briefing. The Supreme Court has occasionally walked that back, suggesting that an agency only gets this deference for interpretations that reflect the “fair and reasoned judgment” of the agency. But today, in many courts, the agency can craft a new interpretation of its regulation in litigation, directly targeted to the arguments that arise in the case.

However, the playing field might get a bit more level, as this week, the Supreme Court accepted a case expressly asking the Court to overrule Auer and Seminole Rock. The case under review involves a Vietnam veteran’s claim for retroactive disability benefits for service-related post-traumatic stress disorder. The claim had been rejected in 1983 due to an erroneous disqualifying diagnosis, but was reopened in 2006 with new evidence of PTSD. The Board of Veterans’ Appeals granted the veteran benefits from 2006 forward, but rejected the claim for retroactive benefits, because it deemed additional service records, which had been available in 1983 with the original request, not “relevant.” “Relevant” was a key term in the agency’s regulations about retroactive benefits, and the Board interpreted the term to encompass only evidence that directly addressed the basis of the 1983 decision. The Federal Circuit, denying a challenge to that decision, deferred to the Board’s interpretation under Auer. Now, the Supreme Court will now revisit its position that judges should accept an agency’s interpretation of its own ambiguous regulation rather interpret the meaning of the regulation on their own.

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Yates Memo Softened

Department Of Justice In Washington DCDeputy Attorney General Rod J. Rosenstein announced a revision of the “Yates Memo” concerning credit a company will receive for cooperating with an investigation.   Instead of an “all or nothing” approach, the new policy permits a company to “identify all individuals substantially involved in or responsible for the misconduct at issue.” More about this change can be found at the Anticorruption blog here.

CMS Proposes Invalidating Adjuster Methodology and Recouping Past Improper Payments From Medicare Advantage Organizations

On October 26, 2018, the Centers for Medicare and Medicaid Services (“CMS”) issued a proposed rule that will, among others initiatives, allow CMS to recover higher dollar amounts of improper payments made to Medicare Advantage Organizations.  Improper payments are identified through Risk Adjustment Data Validation (“RADV”) audits, which are audits conducted to determine whether the risk adjusted payments submitted by Medicare Advantage Organizations are for diagnoses supported by proper documentation. If there are any improper payments based on these audits, CMS is able to recover those payments.

To read more about this ruling and what it might mean for you, click here to read a recent Squire Patton Boggs alert on the subject.

 

Digital Health Update: Recent FDA Cyber Initiatives

The Food and Drug Administration (“FDA”) has greatly increased its activity around cybersecurity initiatives and medical devices. As we approach the end of the year, this is a great opportunity to review recent developments.

FDA Medical Device Cybersecurity Guidance

On October 18, 2018, the FDA published draft guidance, “Content of Premarket Submissions for Management of Cybersecurity in Medical Devices.” This draft replaces prior guidance from 2014, and the outlines recommendations for device design, data confidentiality, labeling conventions, and cybersecurity documentation. Key requirements include:

  • Risk-based categorization of devices into two tiers (based primarily upon device connectivity and risk of cybersecurity incidents);
  • Preparation of a cybersecurity bill of materials listing device components that could be vulnerable to cybersecurity incidents;
  • Recommendations such as requiring authentication before software or firmware updates; and
  • Application of the NIST Cybersecurity Framework.

The public comment period will end on March 18, 2019, and there will be a workshop open to the public on January 29-30. Industry professionals should take this opportunity to determine the effects this guidance could have on device approval in the future and consider commenting.

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Justice Department Allots Additional US$70 Million to Battle Opioid Crisis

In tandem with President Trump’s signing of H.R. 6, (now former) US Attorney General Jeff Sessions announced new Department of Justice (DOJ) funding awards aimed at curbing drug trafficking and supporting youth impacted by America’s opioid epidemic.

At DOJ’s first-ever National Opioid Summit, Sessions and Deputy Attorney General Rod Rosenstein highlighted sustained federal law enforcement efforts to combat opioid abuse and related substance issues. DOJ’s nearly US$70 million investment, which closely follows the recent announcement of nearly US$320 million in grant funding by its Office of Justice Programs, is expected to bolster a variety of department divisions and initiatives.

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Congress’ Extensive Opioid Legislation Becomes Law

On Wednesday, October 24, President Trump signed the Substance Use Disorder Prevention that Promotes Opioid Recovery and Treatment (SUPPORT) for Patients and Communities Act (H.R. 6) into law.

The bill signing occurred three weeks following Congress’ overwhelming approval of the measure, and nearly one year since the Trump Administration deemed America’s opioid crisis a federal public health emergency. House Energy and Commerce Committee Chairman Greg Walden (R-OR) and Senate Health, Education, Labor, and Pensions (HELP) Committee Chairman Lamar Alexander (R-TN), chief architects of the legislation, joined patient advocates and congressional and agency leaders at the White House ceremony.

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