Health Law & Policy Matters

Health Care Attorneys | Mintz Levin Law Firm

OIG Approves Manufacturer’s Direct-to-Patient Discount Sales Program

Posted in Fraud & Abuse, Payors & PBMs, Pharma & Medical Devices, Pharmacies

Written by:  Carrie A. Roll and Theresa C. Carnegie

The Office of Inspector General (“OIG”) recently posted an Advisory Opinion approving a pharmaceutical manufacturer’s direct-to-patient product sales program. While this Advisory Opinion cannot be relied upon by anyone other than the requestor, it potentially opens the door for manufacturers to develop similar direct-to-patient discount arrangements for brand name drugs facing generic competition.


Under the arrangement, the pharmaceutical manufacturer sells one of its brand name drugs (for which there is a generic equivalent) at a discount to any patient who has a valid prescription for the product. The discounted sales price for a 30-day supply of the drug product is much lower than the manufacturer’s wholesale acquisition cost (“WAC”). The patient may be uninsured, have commercial insurance, or be insured by a federal health care program – including Medicare or Medicaid. The patient pays for the drug out-of-pocket and no insurer – governmental or non-governmental – is charged for the cost of the drug. Additionally, Part D patients cannot include the amounts they pay for the product under the arrangement in any submission for true-out-of-pocket expense (“TrOOP”) calculations under a prescription drug plan.

According to the manufacturer, the arrangement operates entirely outside of all federal health care programs. The pharmacy under contract with the manufacturer to dispense the product under this arrangement is prohibited from filing any claim for payment under any federal health care program or any commercial prescription drug insurance plan. All patients must be processed as cash-paying customers. The pharmacy collects the cash payment and sends the full amount of the cash payment to the manufacturer. In turn, the pharmacy is paid a flat fee for its services. The manufacturer does not directly advertise the program to the patients. Patients hear of the arrangement from their health care professionals and the manufacturer’s website.

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ML Strategies Posts Weekly Health Care Update on August 11, 2014

Posted in Fraud & Abuse, Health Care Reform, Payors & PBMs, Pharma & Medical Devices, Pharmacies, Physicians, Reimbursement

ML Strategies has posted its weekly Health Care Update.  This publication provides timely information on implementation of the Affordable Care Act, Congressional initiatives affecting the health care industry, and federal and state health regulatory developments.  Highlights this week include:

  • Brady Unveils Medicare/Medicaid Fraud Bill: House Ways and Means Subcommittee on Health Chairman Kevin Brady (R-TX) released a discussion draft of the Protecting Integrity Medicare Act of 2014—the Committee’s expansive bill to address fraud in the Medicare and Medicaid systems. The draft, which is open for comment from stakeholders, includes a number of bipartisan priorities such as removing Social Security numbers from Medicare cards, increasing education for providers to address fraud through the Medicare Administrative Contractors, and changing durable medical equipment (DME) face-to-face requirements. Reigning in fraud and abuse in public programs continues to be a bipartisan area of agreement as lawmakers strive to introduce legislation focusing on reigning in health care spending.
  • Possible Litigation Threat Adds to Considerations in Containing Drug Costs: As the fight over high spending for the landmark hepatitis C drug, Sovaldi, continues to escalate, especially among state Medicaid programs, stakeholders are now concerned that lawsuits may be an emerging tactic for patients seeking access to the $84,000 per treatment drug. For example, citing a recent case in Arkansas over the cystic fibrosis drug, Kalydeco, which costs $300,000 over the course of a treatment, the Global Liver Institute is supporting such plaintiffs and indicated that more lawsuits could be on the way. The difference between the two types of drugs may be in the size of the intended population. While there are 3.2 million Americans with hepatitis C and clinicians continue to argue about the effectiveness of Sovaldi for a large subset of the group, the entire cystic fibrosis population numbers around 30,000 in the U.S. For many policymakers in the states and at the federal level, the debate continues around the likelihood for which any innovative therapy is likely to reduce costs/improve quality for a patient and whether that can justify the up-front price of a particular drug.

Click here to read this week’s Health Care Update.

CMS Temporarily Closes the Open Payments System

Posted in Fraud & Abuse, Health Care Reform, Hospitals & Health Systems, Pharma & Medical Devices, Physicians

Written by:  Brian P. Dunphy

Open Payments is the website through which pharmaceutical and medical device manufacturers (“Manufacturers”) report payments and transfers of value to physicians and teaching hospitals, as required by the Sunshine Act. The Open Payments system has encountered data issues and has been the subject of growing criticism from physician organizations and industry groups. The Centers for Medicare & Medicaid Services (“CMS”) recently announced that the Open Payments website went offline “temporarily to investigate a reported issue” involving incorrect data. The shutdown raises questions about CMS’s ability to make Sunshine Act data publicly available by its September 30, 2014 deadline and the accuracy of the reported data.

CMS has implemented a multi-step process for data reporting and validation under the Sunshine Act. During the first step, completed around June 30, 2014, Manufacturers covered by the Sunshine Act reported to CMS payments and transfers of value to physicians and teaching hospitals. Now that Manufacturers have submitted payment data, physicians and teaching hospitals (the payment recipients) are in the midst of a 45-day period during which they may register through Open Payments and review and dispute the data that Manufacturers have reported about them. Lastly, once the review and dispute process has ended, CMS will publicly release payment data by September 30, 2014.

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ML Strategies Posts Weekly Health Care Update on July 28, 2014

Posted in Health Care Reform, Payors & PBMs, Pharma & Medical Devices, Pharmacies

ML Strategies has posted its weekly Health Care Update.  This publication provides timely information on implementation of the Affordable Care Act, Congressional initiatives affecting the health care industry, and federal and state health regulatory developments.

Following a week of conflicting court cases on the future of tax subsidies in Federally-run health care exchanges, HRSA’s release of their “interpretive” 340B rule, and continued activity in Congress around the development and delivery of innovative therapies, this week started off with a major breakthrough in efforts to reform Veterans health care.

Click here to read this week’s Health Care Update.

Keep the Benefit of the Bargain – Reps and Warranties Survival in Healthcare Deals

Posted in Mergers, Acquisitions & Other Transactions

Written by: Rachel Irving Pitts

In recent healthcare mergers and acquisitions, we have seen the parties increasingly focus on the survival length of the representations and warranties in the purchase agreements.  More often than not, sellers are looking to reduce the survival time period for “reps and warranties” so they can move forward after the deal is done without those specific promises hanging over their head, while buyers are interested in a longer survival to be sure they can bring a claim for a breach of seller’s reps and warranties.  My colleague Gregory Fine has published an Alert, detailing how parties often negotiate different survival periods for reps and warranties on general business condition, governmental matters, and “special” or “fundamental” items like capitalization and good standing.

As the Alert advises, despite the parties’ intent, the longer survival periods may not be enforced due to a state’s application of varying statutes of limitations. In healthcare deals, where breaches of compliance reps and warranties can mean significant losses for a buyer—particularly where the buyer may be subject to successor liability—a buyer doesn’t want to discover a breach of a seller’s rep or warranty, only to find that it will not receive the benefit of the bargain it struck because the statute of limitations pre-empted the negotiated survival period.  Luckily, there are tools that can help mitigate these issues—some of which are described in their Alert, like careful jurisdiction selection and drafting. In addition, awareness of these issues while negotiating and drafting purchase agreements during the deal can help prevent unwelcome surprises down the road.



Charting the Future of Premium Subsidies under the Affordable Care Act: Halbig v. Burwell and King v. Burwell

Posted in Health Care Reform

Written by: Stephen M. Weiner, Alden J. Bianchi, and Roy M. Albert

On July 22, 2014, two federal appellate courts issued conflicting decisions, within hours of each other, regarding the IRS final rule published on May 23, 2012 (the “IRS Rule”), intended to implement the exchange-related tax credit provisions of the Affordable Care Act (“ACA” or the “Act”).  The decisions will likely lead to another Supreme Court decision addressing fundamental provisions of the ACA.  How these issues are reconciled and resolved will affect the further implementation of Obamacare, and even whether its core policies will survive.


ACA Section 1401 provides for tax credits for eligible taxpayers purchasing insurance “through an Exchange established by the State under [ACA Section 1311]” (emphasis added). ACA Section 1311 directs the states to establish health insurance exchanges. It does not refer to federally-facilitated exchanges. Under ACA Section 1321, if a state does not elect to create an exchange that meets federal requirements, the federal government will “establish and operate” one in that state.  Currently 16 states and the District of Columbia have established their own exchanges.  Thirty-four states rely on federally-facilitated exchanges.  The IRS Rule authorized tax credits for insurance purchased on both the state and the federally-facilitated exchanges.

The Decisions

Both decisions addressed whether tax credits are available for residents in the 34 states that have federally-facilitated exchanges.  The District of Columbia Court of Appeals (the “D.C. Circuit”), in Halbig v. Burwell, said “no”; the Fourth Circuit Court of Appeals (the “Fourth Circuit”), in King v. Burwell, said “yes.”  The decisions turned on readings of the relevant statutory language and application of the principles set out in the 1984 Supreme Court case, Chevron U.S.A. v. NRDC.

The Chevron test is used to assess whether agency action, in this case the IRS, is within the scope of the agency’s authorization, in this case the authority granted by the ACA.  The Chevron test has two prongs:

  • First, has Congress “directly spoken to the precise question at issue?  If the intent of Congress is clear, that is the end of the analysis; for the court as well as the agency must give effect to the unambiguously expressed intent of Congress.”
  • Second, “if the statute is silent or ambiguous with respect to the specific issue, the question for the court is whether the agency’s answer is based on a permissible construction of the statute.”

The D.C. Circuit relied principally on the first prong, concluding that the governing language, the specific language of Section 1401, was unambiguous: the IRS cannot provide for tax credits in conjunction with federally-facilitated exchanges.

The Fourth Circuit, weighing the conflicting arguments put forth by both parties and looking at Section 1401 in a broader context, concluded there was ambiguity in a very complex statute, and so it moved on to the second prong of the Chevron test: whether the IRS Rule was based on “a permissible construction of the statute.”  This review standard, the Fourth Circuit noted, is highly deferential, with a presumption in favor of finding the agency action valid.  Under this prong, in concluding that the IRS Rule should be upheld, the Fourth Circuit was “primarily persuaded by the IRS Rule’s advancement of the broad policy goals” of the ACA: a major overhaul of the entire health insurance market in the US, for which the individual mandate and the tax subsidies are integral.  Further, the court noted that the IRS Rule took on even greater importance in light of the number of states that chose not to establish their own exchanges.

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ML Strategies Posts Weekly Health Care Update on July 21, 2014

Posted in Health Care Reform, Payors & PBMs

ML Strategies has posted its weekly Health Care Update.  This publication provides timely information on implementation of the Affordable Care Act, Congressional initiatives affecting the health care industry, and federal and state health regulatory developments.

Last week, the Department of Labor issued the first, of what we expect to be at least a few, regulations following the Hobby Lobby case.  Also of note, the House Energy and Commerce Committee passed seven public health bills and the HHS Office of the National Coordinator released a study on the potential safety risks for Electronic Health Records.

Click here to read this week’s Health Care Update.

New Massachusetts Law Targets Self-Referrals of Clinical Laboratory Services

Posted in Clinical Laboratories, Fraud & Abuse, State & Federal Audits, Investigations & Litigation

The Fiscal Year 2015 budget for the Commonwealth of Massachusetts, which was signed into law earlier in the week, included a broad prohibition on clinical laboratory self-referrals.  This legislation (the “Bill”) originally proposed by the Attorney General’s office was intended to combat self-referral arrangements between clinical laboratories and sober houses under common ownership, but it extends beyond such relationships to prohibit referrals between clinical laboratories and any person or company with a direct or indirect ownership interest in the laboratory and vice versa (with a number of notable exceptions). Continue Reading

Changes in Breach Notification Risk Assessments Under HIPAA

Posted in Privacy & Security/HIPAA/HITECH

The American Bar Association Health Law Section’s July 2014 eSource publication includes an article by Dianne Bourque, Kimberly Gold, and me that provides examples of how risk assessments under the Breach Notification Rule have changed since the HIPAA Omnibus Rule went into effect in September 2013.   The examples analyzed in this article involve two situations that often stymie health care providers:  1) appropriate disclosures to law enforcement and 2) sending appointment reminders to patients.

Covered entities and business associates having difficulty distinguishing the old “harm standard” and the new Omnibus Rule analysis should understand that the latter clearly imposes a rebuttable presumption that a breach of protected health information will require notification to affected individuals and the government, except under narrow circumstances.  As the article concludes, “striking a balance between an inquiry that meets the risk assessment’s requirements but that minimizes the over-reporting of breaches will be a challenge that covered entities and business associates will need to address” for years to come.

Our firm consistently monitors the HHS Office of Civil Rights’ enforcement and monitoring activities and writes posts noting trends in the area of HIPAA compliance, so keep checking the blog for current health care privacy and security news.

The Growth of Telemedicine Means More Alternatives for Patients

Posted in Physicians, Telemedicine

On Monday, the Washington Post published an article about the growth of online care in the Washington, D.C. region. The slow but steady expansion of the use of telemedicine is enhanced by guidance from a number of state medical boards calling for providers to use the same standard of care in telemedicine and in-person encounters. This position is consistent with recent guidance from the Federation of State Medical Boards and the American Medical Association.

In the Washington Post article, my colleague Ellen Janos recognized that the continued expansion of the use of telemedicine technology is advanced by forward-thinking professional licensing boards:

As a general matter, states that have policies that recognize that the standard of care for telemedicine is the standard of care for an office [visit]. . . those are just the most enlightened.

Ellen advises clients on innovative care delivery models involving telemedicine, and she frequently writes and speaks on state and federal laws applicable in the telemedicine setting.