Court Rejects Vertical Merger Challenge Brought by DOJ

On Monday, September 19, 2022, D.C. District Court Judge Carl J. Nichols rejected the Department of Justice’s (“DOJ”) request to block UnitedHealth’s $13.8 billion acquisition of Change Healthcare. UnitedHealth is the largest health insurer in the United States, while Change Healthcare is a leading data clearinghouse for insurance claims. The DOJ initially filed suit to block the acquisition in February, contending that the acquisition would give UnitedHealth access to its rival health insurers’ data through Change, and that the combined entity would have an incentive to slow delivery of new insurance claim processing tools.

In order for the transaction to proceed, Judge Nichols ordered divestiture of Change Healthcare’s ClaimsXten unit that provides technology to help insurers process claims. ClaimsXten was the only unit found to have had a direct overlap with UnitedHealth, and the divestiture was initially requested by the transacting parties as a way to alleviate DOJ concern that the combined firm would have a large (94%) market share.

Judge Nichols’ 58-page opinion indicated little concern that the vertical aspects of the deal would have anticompetitive effects. Brand reputation and the existence of pre-existing structural protections, such as firewalls and customer contracts requiring data protection, indicated that UnitedHealth was unlikely “to misuse the data in the ways the Government contends.” Additionally, the government provided no evidence “that rival payers will innovate less as a result” of the transaction and that the combined entity would seek to foreclose rivals’ access to key inputs.

Vertical merger challenges by antitrust enforcement agencies have historically been rare. Vertical mergers (i.e. mergers between companies along the supply chain) often generate procompetitive efficiencies and do not pose the same anticompetitive threat as mergers between direct competitors. Often the merging parties are able to negotiate behavioral remedies with the government, such as firewalls, to alleviate any potential concern.

Vertical mergers and acquisitions are common in the healthcare space as they can allow firms, among other things, to streamline production and/or distribution and improve the quality of healthcare for patients. For instance, in 2018, drugstore chain operator CVS Health acquired health insurer Aetna to combine “the strengths and capabilities” of the companies and “improve the consumer health care experience.” The DOJ gave the acquisition a green light after Aetna agreed to divest its standalone Medicare Part D prescription drug plans. Also in 2018, the DOJ approved health insurer Cigna’s acquisition of pharmacy benefit manager Express Scripts.

This lawsuit was the first primarily vertical merger challenge by the DOJ since 2016. Several commentators considered the suit a reflection of the Biden Administration’s attempt to take a tougher anticompetitive stance against big companies, particularly in the healthcare space. The decision is a blow against such efforts and suggests that the presence of firewalls and an active antitrust compliance program are likely to be sufficient to address purely vertical concerns arising from mergers and acquisitions in the future. Head of the DOJ Antitrust Division Jonathan Kanter signaled that the agency may appeal the decision, stating the department was “reviewing the opinion closely to evaluate next steps.” Documents pertaining to the suit can be found here: https://www.justice.gov/atr/case/us-et-al-v-unitedhealth-group-inc-and-change-healthcare-inc.

Healthcare Entities Must Still Comply with 2023 Privacy Laws

By John Wyand and Gicel Tomimbang on September 23, 2022 Posted in Privacy

As we head into the fourth quarter, US businesses need to assess their progress in preparing for sweeping changes to the California Consumer Privacy Act (“CCPA”) that become effective January 1, 2023, and with compliance with four new state consumer privacy laws (in Colorado, Connecticut, Utah and Virginia) that become effective throughout 2023 (collectively, “2023 Privacy Laws”). To help businesses prepare for the requirements of the 2023 Privacy Laws, Team SPB prepared guidance materials, including high level workstreams, covering the following topics: (1) Preparing for 2023 State Privacy Laws; (2) HR and B-to-B Data CCPA/CPRA Compliance Primer; (3) Lessons from the First CCPA Civil Penalty Case; and (4) Takeaways from the First Draft of Revised CCPA/CPRA Regulations.

The 2023 Privacy Laws have carve-outs directly applicable to businesses that must comply with the Health Insurance Portability and Accountability Act (“HIPAA”) (i.e., covered entities and business associates). For instance, at a high level, as directly related to HIPAA:

The CCPA, as amended by the California Privacy Rights Act (“CPRA”), exempts protected health information (“PHI”) under HIPAA, as well as HIPAA covered entities to the extent they are maintaining patient information according to HIPAA requirements.
The Virginia Consumer Data Protection Act (“VCDPA”) does not apply to qualifying HIPAA covered entities and business associates, or to PHI, as the terms are defined under HIPAA. The VCDPA also exempts from its requirements healthcare data that has been de-identified according to HIPAA standards, information used for public health purposes authorized by HIPAA, or information originating from, and intermingled to be indistinguishable from PHI maintained by a covered entity or business associate. The exemptions under the Utah Consumer Privacy Act (“UCPA”) and Connecticut’s Privacy Law (“CTPA”) largely track the VCDPA.
The Colorado Privacy Act (“CPA”) does not apply to information and documents created by a covered entity to comply with HIPAA. Note that this is broader than under the CCPA/CPRA and the VCDPA exemptions.

The 2022 Proposed Rule on Section 1557 of the Affordable Care Act Reflects a History of Competing Views on the Definition of Discrimination On the Basis of Sex in Healthcare Programs

By Ima Nsien on September 7, 2022 Posted in ACA, HHS, Proposed Rule

On August 4, 2022, the Department of Health and Human Services (“HHS”) issued its proposed rule on Section 1557 of the Affordable Care Act (“ACA”). Section 1557 prohibits discrimination on the basis of race, color, national origin, sex, age or disability in certain health programs or activities, if any part of the program or activity receives Federal financial assistance. Section 1557 incorporates Title IX of the Education Amendments of 1972 (“Title IX”), which provides that “[n]o person in the United States shall, on the basis of sex, be excluded from participation in, be denied the benefits of, or be subject to discrimination under any education program or activity receiving Federal financial assistance…, or under any program or activity that is administered by an Executive Agency or any entity established under [Title I of the ACA].” The 2022 Proposed Rule reflects a significant departure from the 2020 Final Rule’s narrow definition of discrimination on the basis of sex, and enlarges the 2016 Final Rule’s already expansive definition of discrimination on the basis of sex. The 2022 Proposed Rule specifically includes sex stereotypes, sex characteristics, sexual orientation, gender identity and pregnancy or related conditions as bases for sex discrimination. HHS is soliciting public comments on the 2022 Proposed Rule through October 3, 2022. The Section 1557 implementing regulation would be effective 60 days after HHS publishes a final rule.

Buyer Beware: FEMA Claw Backs Could Require Hospitals to Return Funds Received from FEMA for COVID-19 Purchases and Expenses

By Heather Stutz on September 2, 2022 Posted in COVID-19, Hospitals

In the height of the COVID-19 pandemic, hospitals did what they needed to do to control the spread and keep patients alive. That meant purchasing more of certain specialized equipment than they ever would have needed in non-pandemic times. Sometimes that even meant converting a storage shed on a hospital’s parking lot to a drive thru for rapid testing and vaccinations – improvements that are useless to the hospital outside of the surge in need for pandemic-level testing and vaccinations.

Many hospitals took these steps without any promise of return value for it, because it was the right thing to do to meet their communities’ needs. Some hospitals obtained partial funding from FEMA (Federal Emergency Management Agency) for these expenditures. FEMA funding was a welcome relief for any hospital that received it, but even more so for hospitals already in financial distress, exacerbated by the decrease (and in some cases total cessation) of elective and other services for an extended period during the pandemic, and increased costs of labor and supplies.

But hospitals that received FEMA funding must read the fine print and understand its limits. FEMA funding is not a windfall and an award of funding is not the end. FEMA has the ability to recoup funding under certain circumstances. See 2 C.F.R. §§ 200.313 (c) and (e), 200.314(a), and 200.311. Accordingly, entities that received FEMA funding for COVID-related expenses should be aware of the possibility of reimbursement to FEMA if/when those entities are no longer using the equipment, supplies, property and improvements for COVID-related (or other FEMA-approved/federally funded) purposes. There are options of how to fund the reimbursement, including selling the property or equipment and reimbursing FEMA with a portion of the proceeds, but the regulatory mechanisms do not fit every possible scenario and may ultimately leave FEMA funding recipients holding the bag.

U.S. Supreme Court Rules Unanimously in Favor of 340B Hospitals

By Estefania Borrero on August 25, 2022 Posted in 340B Program, U.S. Supreme Court

On June 15, 2022, the Supreme Court unanimously decided to reverse the judgment of the U.S. Court of Appeals for the D.C. Circuit. AHA v. Becerra, 142 S. Ct. 1896, 1906 (2022). The issue was whether the Medicare statute affords the Department of Health and Human Services (“HHS”) discretion to vary the reimbursement rates under the 340B program for 340B hospitals without conducting any survey on the hospitals’ costs. Id. at 1899. The Supreme Court answered this question in the negative. Id.

In the unanimous opinion, authored by Judge Kavanaugh, the Supreme Court emphasized that “[f]or those 340B hospitals, this case has immense economic consequences, about $1.6 billion annually.” Id. During 2018 and 2019, HHS greatly reduced the reimbursement rates for 340B hospitals without conducting surveys on the hospitals’ costs for outpatient prescription drugs. Id.

The Supreme Court further explained that the 2003 Medicare Modernization Act (“Act”) not only authorizes HHS to set reimbursement rates for covered outpatient prescription drugs provided by hospitals but the Act also provides the manner in which HHS must set reimbursement rates. Id. at 1903. The statute provides two possibilities for HHS to establish the rate. First, HHS may collect survey data of the hospitals’ acquisition cost for outpatient drugs. §1395l(t)(14)(A)(iii)(I). On the other hand, if cost data is not available, HHS may collect cost data from drug manufacturers. §1395l(t)(14)(A)(iii)(II).

Ultimately, the Supreme Court did not agree with HHS’s position and concluded that “absent a survey of hospitals’ acquisition costs, HHS may not vary the reimbursement rates for 340B drugs for hospitals. HHS’s 2018 and 2019 340B drug reimbursement rates for 340B hospitals were therefore contrary to the statute and unlawful.” AHA v. Becerra, 142 S. Ct. 1896, 1906 (2022).

U.S. Supreme Court Agrees with HHS Payment Methodology for Disproportionate Share Hospitals

By Jeffrey DeBeer and Keith Bradley on July 13, 2022 Posted in HHS, Reimbursement, U.S. Supreme Court

The fight about how Medicare compensates disproportionate share hospitals (“DSH”) is one of the longest-running reimbursement disputes of recent years, and it has generated copious work for judges around the country. In a 5-4 decision, the U.S. Supreme Court settled one piece of the conflict: the counting of “Medicare-entitled” patients in the Medicare fraction of the “disproportionate-patient percentage.” Becerra v. Empire Health Found., 597 U.S. ___ (2022) (slip op.). The Supreme Court concluded that the proper calculation, under the statute, counts “individuals ‘entitled to [Medicare] benefits[,]’ . . . regardless of whether they are receiving Medicare payments” for certain services. Id. (slip op., at 18) (emphasis added).

DSH payments are made to hospitals with a large low-income patient mix. “The mark-up reflects that low-income individuals are often more expensive to treat than higher income ones, even for the same medical conditions.” Id. (slip op., at 3). The federal government thus gives hospitals a financial boost for treating a “disproportionate share” of the indigent population.

The DHS payment depends on a hospital’s “disproportionate-patient percentage,” which is basically the sum of two fractions: the Medicare fraction, which reflects what portion of the Medicare patients were low-income; and the Medicaid fraction, which reflects what portion of the non-Medicare patients were on Medicaid. Historically, HHS calculated the Medicare fraction by including only patients actually receiving certain Medicare benefits for their care. In 2004, however, HHS changed course and issued a new rule. It counted, in the Medicare fraction, all patients who were eligible for Medicare benefits generally (essentially, over 65 or disabled), even if particular benefits were not actually being paid. For most providers, that change resulted in a pay cut.

The new rule sparked several lawsuits. Hospitals challenged HHS’s policy based on the authorizing statutory language. These hospitals essentially argued in favor of the old methodology. Appeals led to a circuit split, with the Sixth and D.C. Circuits agreeing with HHS, and the Ninth Circuit ruling that HHS had misread the statute.

Avoiding Endless Liability From ‘Take Home’ COVID Claims

By Karen Wentzel and Cristen Hintze on June 24, 2022 Posted in COVID-19, Labor and Employment

You’ve just been informed that an employee who apparently contracted COVID-19 from an exposure in your workplace brought the virus home, and now their spouse, who is in a high-risk category, has contracted the virus and is in the hospital. Do you as the employer face potential liability for the spouse’s illness?

More than two dozen so-called take-home COVID-19 lawsuits have been filed across the country, including against some of the largest employers in the U.S. This alarming pattern has prompted trade groups to warn employers of the potential for lawsuits stemming from COVID-19 infections filed not only by workers’ family and friends, but by anyone infected by that circle of people, creating seemingly endless chains of liability for employers. Some states have enacted laws shielding employers from such suits, but where that is not the case, the legal theories and procedural paths under which these suits have proceeded vary — including some being brought in state courts, some in federal courts, and others brought under claims within the workers’ compensation system.

Healthcare Non-Competes in 2022: Status Following Recent Developments

By William Kishman on June 17, 2022 Posted in Antitrust, Labor and Employment

For healthcare entities that use non-compete agreements, the landscape has changed as much recently as it has at any point in recent memory. Several developments at the federal level have created a potential pitfall that did not materially exist until recently, i.e., a non-compete agreement violating antitrust law. Further, several recent state laws have heightened the bar for an employer seeking to enforce a non-compete. Finally, the new landscape of union organizing has created another key consideration for healthcare organizations that wish to protect against unfair competition, while at the same time maintaining high morale and avoiding unwanted union organizing.

FDA Issued Enforcement Discretion Measures for Infant Formula

By Jennifer Tharp on May 17, 2022 Posted in FDA, Supply Chain

In recognition of the infant formula crisis facing the United States supply chain, the Food and Drug Administration (“FDA”) issued guidance on May 16, 2022 providing for enforcement discretion with respect to certain requirements for infant formulas that may not comply with certain statutory and regulatory requirements. The guidance remains in effect until November 14, 2022. Under this guidance, three categories of manufacturers may submit information to FDA:

Infant formula manufacturers who manufacture infant formula for export in domestic facilities;
Infant formula manufacturers who presently do not export infant formula manufactured in foreign facilities to the United States; and
Infant formula manufacturers who may be able to provide infant formula to help address shortages by changing production site(s), changing production practice(s), or making other changes to an existing infant formula.

Submissions should contain all the required information in Section III. D of the guidance and be submitted to Infant_formula_flexibility@fda.hhs.gov. FDA requests information including product specifications and labeling, current markets, inventory, manufacturing facilities, distribution plans to the retail level, full quantitative formulations, test results, and certifications for the manufacturing facility, as applicable. Upon receipt of the request, FDA will then consider “whether to exercise enforcement discretion and the extent of that enforcement discretion.”

Generally, FDA requires persons responsible for infant formula manufacture or distribution to register with FDA and provide submissions for any new formulations or changes to existing formulations. There is a built-in timing delay, as manufactures may not market the new infant formula until 90 days after the filing date provided by FDA upon receipt of the submission. The submission package requires details including a description of the formula, quantitative formulation, compliance assurances, and quality assurance data, among other requirements. Regulated as a food, infant formula has its own statutory and regulatory requirements located in 21 CFR Parts 106 and 107 that manufacturers need to follow. This includes minimum amounts for thirty nutrients and maximum amounts for ten of them. See 21 CFR § 107.100. FDA has explained in guidance that infant formula not meeting these designated levels are considered adulterated. The guidance provides an important pathway for manufacturers who may presently meet FDA requirements to assist in alleviating the domestic shortage of infant formula.

Ohio Expands Availability of Telehealth

By Robert Nauman on March 31, 2022 Posted in Ohio, Telehealth

Since the beginning of the COVID-19 pandemic, policymakers at both the federal and state level have worked to expand the availability of telehealth services. Since telehealth , in many cases, is viewed to provide a convenient, accessible and safe alternative to in-person visits with healthcare providers, it has been considered an effective tool to maintain access to healthcare services in light of the pandemic’s challenges. Consequently, many pre-pandemic regulatory limitations to telehealth were temporarily waived during the pandemic. Given this experience, and the generally favorable responses to expanded telehealth availability from patients and providers, many policymakers are now working to make this temporary expansion permanent.

Consistent with this trend, last year the Ohio legislature passed House Bill 122, which was signed into law by Governor DeWine on December 22, 2021. HB 122 helps expand telehealth availability through two primary mechanisms: (i) requiring health plans to reimburse healthcare professionals for providing covered telehealth services, and (ii) expanding the classes of health care providers who are authorized to provide telehealth services. Continue Reading