New UK study shows reduction of competition within NHS hospital market increases patient harm rates

On 31 January 2019, economists at the UK Competition and Markets Authority and London School of Economics published a new working paper on the effect of mergers between NHS hospitals on patient harm, stating that “a hypothetical merger to monopoly would, on average, be associated with a significant increase in harm rates”.  These findings have been published amidst several recent NHS hospital merger clearances by the UK competition watchdog, the Competition and Markets Authority (CMA), which we reviewed this blog last year.

At first glance, the effect of competition within the NHS hospital market may appear reduced given certain sector-specific factors such as the fact that it is a heavily regulated sector, it is a public not-for-profit system and capacity constraints prevent hospitals from accepting additional patients (the “customers”, from a competition law standpoint).  However, competition has been in place within the NHS hospital market, and even more so since the two reforms in 2003 and 2006 provided patients with greater choice and introduced NHS funding for care in private Independent Sector Treatment Centres (ISTCs). NHS hospital mergers have therefore gained considerable scrutiny from the CMA and, since 2010, all hospital mergers (bar one) were allowed either because the CMA concluded that there was no risk of a substantial lessening of competition (SLC) or on the basis that relevant customer benefits (RCBs) outweighed any harm arising.

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State Legalized Marijuana Businesses and Access to the Bankruptcy Code

The June 13, 2018 Practical Law Practice Note co-written by Squire Patton Boggs attorneys Mark A. Salzberg, Elliot M. Smith, and John E. Wyand titled “State Legalized Marijuana Businesses and Access to the Bankruptcy Code” was recently updated to reflect recent case law as well as changes to the Controlled Substances Act. The Practice Note discusses the federal statutory scheme governing marijuana, its tension with state laws governing marijuana businesses, and the ability or inability of marijuana related businesses to access the relief provided under federal bankruptcy law.

Healthcare Cybersecurity Best Practices Out Now

A new outlook on the most prominent cybersecurity threats in the healthcare industry today and a series of corresponding, risk-prioritized cybersecurity best practices to combat these threats are now available from the Department of Health and Human Services (HHS).  More than 150 private sector healthcare and cybersecurity experts contributed to this guidance as part of the task force HHS established in response to The Cybersecurity Act of 2015.  Their goal, cost-effectively strengthening cybersecurity in the healthcare industry.

Heightened cybersecurity vigilance is a necessity everywhere today.  The healthcare sector in particular, however, has amassed vast amounts of sensitive personal, financial and health information, making it a particularly attractive target.

While this new guidance does not create a new “mandatory” cybersecurity framework, regulators and courts may still defer to it when the “reasonableness” of security safeguards is questioned post-breach in the healthcare sector.

Read more about the HHS report here.

Department of Justice 2018 in Review

Department Of Justice In Washington DCPolicy Shifts at the Department of Justice – 2018 in Review provides an easily navigated yet detailed summary of significant developments at the Department of Justice (DOJ)  focusing on fraud and abuse. This Alert sheds light on how the policy shifts may affect the health care industry in the coming year. Among the topics of interest to healthcare are:

  • Debut of Justice Manual
  • False Claims Act Developments – Granston and Brand Memos
  • Relaxing All or Nothing Yates Memo
  • Reducing Duplicative Penalties

Click here to download the full Alert.

What Employers Need to Know as Medical Marijuana Comes to Ohio

Employers need to be prepared to address issues with employees regarding possession and use of medical marijuana.

What Does the Law Say?

Ohio’s medical marijuana law, passed in 2016, permits patients with any of 21 specific medical conditions to purchase, use and possess medical marijuana in various forms (including certain dried plant material, oils and edibles). Patients must register with the state Board of Pharmacy and, if the patient is under the age of 18, he or she must also have a registered caregiver to monitor his or her use of the medical marijuana.

Importantly, the law explicitly states that employers do not have to accommodate an employee’s use of medical marijuana. Medical marijuana use or possession is considered just cause for termination under the law. For the purposes of workers’ compensation, if an employee tests positive for marijuana after a workplace accident, the state presumes the marijuana was the cause of the accident, even if the employee is a registered patient. This raises the employee’s burden to receive workers’ compensation benefits.

Also, keep in mind that marijuana for any purpose, including medical use, is still prohibited by federal law. The federal government has declined to enforce many marijuana laws in states that have legalized the drug, but it remains a federal crime to possess, use or distribute marijuana for any purpose. As a result, neither the Americans with Disabilities Act nor the Family and Medical Leave Act require accommodations or leave for patients to use medical marijuana in Ohio.

Addressing Employee Use

All employers in Ohio may continue to enforce zero-tolerance drug policies and may discipline, terminate or refuse to hire anyone who uses, possesses or distributes medical marijuana. Employers may also continue to conduct drug testing on employees. In other words, the new law does not require any change in how employers currently address employee drug use. Employers that are particularly concerned or want to clarify their policies can add language to their anti-drug policies that makes clear the use of medical marijuana is also a violation.

In many instances, Ohio employers do have the option to accommodate medical marijuana use. Before doing so, however, the employer should follow certain precautions. An employer providing services to another entity should ensure that it does not run afoul of its business partner’s contractual rights or policies. For example, accommodating medical marijuana use could cause you to lose privileges at a hospital system or commit a similar misstep. Similarly, if your organization receives a workers’ compensation rebate for maintaining a drug- free workplace, you should not accommodate employees’ medical marijuana use if you want to continue receiving the rebate. Likewise, if you serve as a government contractor or subcontractor, that government contract may preclude you from accommodating medical marijuana use.

If an Ohio employer does elect to accommodate employees’ medical marijuana use, it should be careful to make clear use of the drug at work is prohibited, and must ensure that employees are not under the influence of marijuana when they are responsible for supervising employees. Employers may, however, set different parameters regarding marijuana use for different jobs (when they have the option to accommodate marijuana use as noted above). For example, an employer can prohibit medical marijuana use for transportation employees (which would align with requirements for their CDLs), while permitting custodial employees to use medical marijuana off campus so long as the employer can show it had a legitimate business reason for that distinction.


Pharmacy Benefit Managers Are Not Subject to the Any Willing Provider Laws in GA, MS, or NC, says Eighth Circuit

The Eighth Circuit has recently reviewed whether a pharmacy benefit manager (”PBM”) is a “health benefit plan” within the meaning of the state statutes in Mississippi, North Carolina, and Georgia such that a pharmacy may bring a claim to enforce the any willing provider laws against PBMs. 

Many states have enacted some version of any willing provider laws, which generally require healthcare plans to accept any qualified provider willing to accept the plans’ terms and conditions.  Some of these laws, such as Colorado’s § 10-16-122, C.R.S., specifically refer to PBMs.  Others, such as Mississippi’s Miss. Code. Ann. § 83-9-6, are much more ambiguous.  For example, Miss. Code. Ann. § 83-9-6 applies “to all health benefit plans providing pharmaceutical services benefits, including prescription drugs…” without specifically mentioning PBMs.

A pharmacy sued a PBM in the Eastern District of Missouri, bringing claims sounding in contract, promissory estoppel, federal antitrust, and violations of Georgia, Mississippi, and North Carolina state any willing provider laws after the PBM terminated its contract with the pharmacy.  In its appellate briefing, the pharmacy argued that the District Court should have afforded it an opportunity to prove that a PBM falls within the purview of the Mississippi, North Carolina, and Georgia any willing provider laws, even in the absence of binding authority holding that these statutes apply to PBMs.  The Eighth Circuit concisely rejected this invitation with a single sentence:  the pharmacy  “has pointed to no case law that suggests that these laws apply to PBMs, and we decline to extend the reach of these laws to PBMs as a matter of first impression.”  The Eighth Circuit’s holding thus rejected the pharmacy’s claims under these statutes. 

Health care entities reviewing state any willing provider laws should perform careful state-specific research as to the applicability of those laws.  Even more generally, the Eighth Circuit opinion cautions litigants against framing claims enforcing state healthcare statutes absent authority supporting the statutes’ application.


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.” 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.