In 2017, FDA issued only 44 Warning Letters to medical device establishments. Of those, 11 were related to pre-market issues, which include investigational device exemption violations or lack of approval or clearance. Only 33 of the device Warning Letters in 2017 were issued for cGMP, Quality System, or MDR violations, a remarkable figure since FDA regularly sent over 100 device regulation compliance Warning Letters every year from 2011 to 2015.

One might expect that fewer Warning Letters means fewer inspections, but FDA’s inspection database shows that the number of device compliance inspections has remained fairly consistent from 2011 through 2017. The number of inspections has certainly decreased from a high of 1,859 in 2011, but FDA conducted 1,624 device compliance inspections in 2014, 1,533 in 2015, 1,539 in 2016, and 1,551 in 2017. Clearly, the sudden drop off in Warning Letters has been much steeper than the modest decrease in inspections.

What could be driving this decrease in Warning Letters? I briefly explore three possibilities below. Continue Reading Drop in Warning Letters for Medical Devices Raises Interesting Questions About the Industry

The all-too-common story of a healthcare company declaring bankruptcy in the face of aggressive Medicare recoupment actions before the company even has a hearing before an Administrative Law Judge (ALJ) may get a new ending – at least in the Fifth Circuit.  Although the Fifth Circuit Court of Appeals remanded the case, Family Rehabilitation, Inc. v. Azar, back to the district court and thus it is still too soon to tell the ultimate outcome, it reversed the district court and held that there is jurisdiction for a district court to enjoin CMS recoupment during the administrative appeals process.  This decision is a big win for companies navigating the difficult and seemingly one-sided process of Medicare recoupment actions. Continue Reading Fifth Circuit Decision is Rare Victory Permitting District Court to Enjoin Recoupment Before Provider Exhausts Administrative Remedies

On Monday, CMS published a number of policies changing the dynamics of the individual market, including the Benefit and Payment Parameters for 2019 Final Rule, guidance on hardship exemptions, and a bulletin on transitional (grandmothered) plans. When interpreting all of these policies it’s important to keep in mind the following: What is success? And who is defining it?

The Obama Administration managed ACA implementation with the clear intention of making sure the outcome met the goals of the law: more people covered, more choices of coverage for those people, and lower premiums.  While the success of their efforts can be debated, the intention was always known.

For the Trump Administration, it is not necessarily clear how successful implementation of this next rule will be judged.  Are they trying to maximize the number of people covered, maximize the number of choices available or lower premiums?  What is the organizing principle?  Is it as simple as providing additional regulatory flexibility?

There are two other stakeholders who also have to determine their definition of success in the face of this rule: states and insurers.  For states, they will have to determine if and how they will use the additional flexibility granted to them under their rule.  Insurers, with the loss of the individual mandate and CSRs, and the looming threat of STLDIs and AHPs, have to decide if the rule provides a stable environment for participation.

From now through the start of the next open enrollment period, we expect significant backstage drama as insurers, states, and the Administration answer these questions.  The offerings and premiums available to Americans six days before the midterm elections depend on these decisions. Continue Reading CMS Benefit and Payment Rule: What is Success for the ACA?

In a recent Antitrust Alert, our colleagues Dionne Lomax, Bruce Sokler, Robert Kidwell, and Shawn Skolky discuss the allegations in the consolidated class actions, In re Blue Cross Blue Shield Antitrust Litig., the court’s analysis, and its market implications.  In this antitrust case against the Blue Cross Blue Shield Association and various individual Blue Plans, a federal court recently ruled that certain allegedly restrictive practices are properly analyzed under the Sherman Act’s per se standard, which deems certain types of agreements inherently unlawful. The court’s April 5 decision, which relied on two Supreme Court decisions from the 1960s and 1970s, runs contrary to a recent growing trend to apply the rule of reason to modern business relationships by analyzing the competitive impact of restrictions and weighing the procompetitive benefits against the potential anticompetitive effects.

 

Congress will continue its work in addressing the opioid crisis this week with a hearing in the Senate Finance Committee. There were reports last week that Congress will also consider legislation around telemedicine, which is sure to capture stakeholders attention. The Administration is also going to take another look at drug pricing which is setting the stage for another busy work period. We cover this and more in this week’s preview, which you can find here.

Last month, the Department of Health and Human Services’ Office of Inspector General (OIG) released its latest report on compliance with the Drug Supply Chain Security Act (DSCSA). As we discussed in a prior post, the DSCSA requires enhanced security and accountability for prescription drugs throughout the U.S. pharmaceutical supply chain, with phased-in obligations for the various trading partners over 10 years, beginning with the law’s passage in November 2013. Covered trading partners include manufacturers, repackagers, wholesale distributors, and dispensers.

The OIG’s most recent study focuses on dispensers of various sizes and types, including independent retail pharmacies, chain retail pharmacies, and small and large hospital pharmacies. Of the 40 dispensers interviewed, the agency found that all them had received at least some drug product tracing information from their trading partners, and 26 of these dispensers received all required elements of this information. The remaining 14 dispensers were missing a few of the required elements. Two of the dispensers were unaware of the DSCSA. The following table summarizes the missing information:

The OIG also found that dispensers received drug product tracing information in a variety of transmission modes and formats. The agency believes this is a result of dispensers and their trading partners using different systems rather than adopting a standardized way to exchange this information. Neither the DSCSA nor FDA guidance requires a uniform transmission mode or format for the exchange of drug product tracing information.

To facilitate dispensers’ compliance with the DSCSA, the OIG recommends that FDA offer educational outreach to dispensers where appropriate. Specifically, the agency recommends that FDA provide education to ensure that dispensers understand their responsibilities to receive complete drug product tracing information from trading partners before taking ownership of drug products.

For its part, FDA concurred with the OIG’s recommendation and intends to review its dispenser communications plan and identify and create opportunities to work with dispenser-centric trade and professional organizations to provide additional education and outreach. FDA also noted in its response that, as the last trading partner in the supply chain before a drug product is dispensed to a patient, dispensers play a vital role in ensuring patient safety, making it essential that they understand their product tracing responsibilities under DSCSA.

We will continue to monitor and report on the industry’s implementation of the DSCSA, including the OIG’s planned study of the extent to which drug product tracing information can be used to trace drugs through the entire supply chain.

In a previous blog, we reviewed pending and approved 1115 waivers in 8 states. We also highlighted the trends we see in 1115 waivers, such as changes to coverage requirements, a time limit on how long certain beneficiaries can receive Medicaid coverage, lock-outs if an individual fails to pay a premium or meet the work requirement, and drug testing requirements.

It is important to remember that the proposals and concepts we see in 1115 waivers are developed at the state level. And there is typically a lot of state action surrounding 1115 waivers to guide what actually goes into a waiver application.

We have reviewed the state action, legislation, and executive orders as they relate to 1115 waivers, with a specific focus on how states are viewing work requirements, time limits, and lock outs. This summary focuses on states that do not have a pending or approved 1115 waiver including those provisions.

Our analysis shows that 1115 waiver applications are not likely to slow down and trends surrounding Medicaid work requirements are likely to continue. 

Click here to see the analysis on current state activity surrounding Medicaid work requirements.

*Alisa Laufer and Nicole Meyerson contributed to this blog post.

 

In March, the Medicaid and CHIP Payment and Access Commission (MACPAC) released its biannual report to Congress. MACPAC is an independent congressional agency that advises Congress on issues relating to Medicaid. In its report, the Commission made a three part recommendation in regards to streamlining Medicaid managed care authorities. Continue Reading Federal Commission Recommends Streamlining Medicaid Waiver Authorities

This week, Congress returns from recess with its eyes set on addressing the opioid crisis. We expect to see some form of bipartisan legislation considered between now and Memorial Day. We will also see Congress dive into appropriations which will eat up plenty of time, not to mention nominations of Cabinet officials and appointments to the federal bench. We cover this and more in this week’s health care preview, which you can find here.

On March 29, 2018, the Attorney General of California filed an antitrust action against Sutter Health and its affiliates (“Sutter”) alleging Sutter engaged in various anticompetitive conduct in violation of California’s Cartwright Act.[1]  According to the Complaint, healthcare costs in California have rapidly increased, and prices in Northern California are higher than in other areas of the State.  For example, the State asserts that “unadjusted inpatient procedure prices are 70% higher in Northern California than Southern California, corresponding to hospital market concentration being 110% higher in Northern California than Southern California . . .”

The State believes that the increased cost of healthcare in Northern California is largely “attributable to Sutter and its anticompetitive contractual practices,” which it allegedly imposed as a result of securing market power in certain local markets in Northern California.  The State asserts that Sutter has “compelled all, or nearly all, of the Network vendors operating in Northern California to enter into unduly restrictive and anticompetitive contracts” that have:

  • Established, increased and maintained Sutter’s power to control prices and exclude competition;
  • Foreclosed price competition by Sutter’s competitors; and
  • Enabled Sutter to impose prices for hospital and healthcare services and ancillary services that far exceed the prices it would have been able to charge in an unconstrained, competitive market.

Sutter Health is the largest hospital system in Northern California, with 24 state-licensed acute-care hospitals and 4,311 acute care beds, 35 outpatient centers, a 5,500 member physician organization, and other ancillary providers.

Summary of the State’s Complaint

The State argues that Sutter began to implement a strategy to acquire market power at the time of the merger between Sutter’s Alta Bates Hospital and Summit Medical Center (“Summit”), noting that the transaction enabled Sutter to “increase prices, and thus costs, for its healthcare services.”  According to the complaint, a 2008 Federal Trade Commission retrospective review of the transaction found that contracted price increases for Summit post-merger ranged from approximately 29% to 72% depending on the insurer, compared to approximately 10% to 21% at Alta Bates, and that the Summit post-merger price increases were among the highest in California.”  Sutter defended the merger by arguing, in part, that it would not be able to exercise market power to raise prices post-merger, because insurers could incentivize patients to seek care at lower-cost alternatives through various steering and tiering mechanisms.  The district court agreed.

The State alleges, among other things, that Sutter is now leveraging and maximizing its “market power in certain local healthcare markets across all markets” and preventing insurers from “using steering and tiering to counter its excessive pricing.”  Moreover, Sutter is accused of successfully demanding that all, or nearly all, of its contracts with its “Network Vendors[2]” include implicitly or explicitly:

  • An agreement that contains an “all-or-nothing” contract provision requiring that all Sutter hospitals and healthcare providers throughout Northern California be included in the payor’s provider network.  The State alleges that Sutter has exploited its substantial market power to illegally tie or bundle each of its individual hospitals to all of the other hospitals and providers in its Northern California hospital network.
  • An agreement that prohibits anyone offering access to a provider network from giving incentives to patients that encourage them to use the healthcare facilities of Sutter’s competitors.  The State alleges Sutter entered written or oral agreements that forbid or severely penalized health plans that used tiered networks by eliminating or nearly eliminating the health plan’s negotiated discounts off of Sutter’s pricing.
  • An agreement prohibiting the disclosure of Sutter’s prices for its general acute care hospital services (including inpatient and outpatient services) and ancillary and other provider services, before the service is utilized and billed.  The State alleges that this has the effect of concealing Sutter’s inflated pricing from the self-funded and other payors, and preventing them from determining the prices they will later have to pay to Sutter for the healthcare services included in their health plans at the time they select among the provider network options offered by competing Network Vendors.  As a result, payors and enrollees in health plans were allegedly “less able to exert commercial pressure on Sutter to moderate its inflated pricing.”

According to the State, Sutter also uses “punitively high Out-of-Network Hospital pricing in combination with the anticompetitive provisions in its agreements with Network Vendors to make it economically unfeasible for Network Vendors to choose higher-quality and/or lower-cost hospital competitors.”

The State alleges that such provisions have had significant anticompetitive effects in Northern California, including: (1) creating barriers to entry and expansion for existing and potential general acute care competitors in each of the geographic markets where Sutter’s hospitals are located; (2) depriving patients of the ability and the incentive to choose a better-quality and/or lower cost competing hospital or ancillary provider; and (3) depriving Sutter’s competitors of the ability to effectively compete based on price or quality, which allows Sutter to maintain system-wide prices at levels that are significantly higher than the prices currently charged by its competitors and substantially higher than prices that could be charged in a competitive market.

Relevant Market Definition

In an interesting twist, the State notes that it need not define and identify “the particular economic markets that Sutter’s conduct has harmed” given evidence of the direct negative effects Sutter’s “anticompetitive conduct has caused Network Vendors and Self-Funded Payors,” who the State alleges have paid substantial overcharges compared to what they would have paid in a competitive market for healthcare services.  The State notes that Sutter’s ability to impose anticompetitive contract terms in all of its agreements with payors and its ability to “persistently and directly charge supracompetitive prices to payors on a system-wide basis” are direct evidence of its market power  that “obviates any need for further analysis of competitive effects in particular defined markets.”[3]  Notwithstanding this assertion, the State also defines the relevant product market as “the cluster of general acute care hospital services (including inpatient and outpatient services), as well as ancillary services, that are made available for purchase, in whole or in part, through Network Vendors out of the funds of Self-Funded Payors.”

The State asserts that the relevant geographic market can alternatively be defined either (1) as a 15-mile/30-minute driving time from any Sutter hospital or on the basis of counties in which a Sutter hospital is located, or (2) based on the regions set out in Paragraph 84 of a complaint filed against Sutter by the UFCW & Employers Benefit Trust (UFCW & Employers Benefit Trust v. Sutter Health, et al., Case No. 15-53841), in which one or more Sutter facilities are located.

The State alleges that health plan enrollees who live and work in the vicinity of a Sutter facility do not view hospitals located outside of the relevant geographic market as viable substitutes for facilities located within the geographic market.  Similarly, the State alleges that not only are network vendors (who seek to assemble provider networks for health plan enrollees), unwilling to consider hospitals outside of the relevant geographic market to include in their networks, due to Sutter’s market shares in a large number of zip codes and the existence of “must have” Sutter hospitals, the Network Vendors are “unable to assemble commercially viable Providers Networks that exclude all Sutter hospitals.”

Conclusion

This case serves as an important reminder that State Attorneys General can be just as aggressive in enforcing the antitrust laws as the federal antitrust authorities.  While integrated health care systems can often provide a number of efficiencies and benefits to consumers, under certain circumstances the antitrust authorities may view specific business and contracting practices with skepticism.  Large health care providers with significant market share in one or more geographic areas need to be mindful of their contracting practices and ensure that their business strategies are closely scrutinized by antitrust counsel prior to implementation.  This matter, as well as the ongoing litigation the Department of Justice Antitrust Division and the State of North Carolina have against the Carolina’s Healthcare System, is another example that contractual provisions that reference competitors and/or anti-tiering or anti-steering clauses in payers contacts may, depending on local market conditions, raise antitrust concerns.

 

[1] The Cartwright Act is California’s principal state antitrust law.  It is intended to prevent anticompetitive activity, and it mirrors the same concepts as the federal antitrust laws (the Sherman Act and the Clayton Acts).  It prohibits agreements between competitors to restrain trade, fix prices or production, or lessen competition, and other conduct that unreasonably restrains trade.

[2] Network Vendors are defined in the complaint as a small group of specialized insurers that possess the expertise necessary to develop and assemble provider networks that will be useful to all of the people enrolled in the health plans offered by a variety of employers and Healthcare Benefits Trusts operating in a variety of locations in Northern California.  Healthcare benefits are sometimes funded through a trust that is established and maintained under the terms of a collective bargaining agreement between a labor union and one or more employers (i.e.,  Healthcare Benefits Trusts).

[3] Direct effects evidence is evidence indicating the likely competitive effects of a practice (or transaction) that is not based on traditional inferences drawn solely from market concentration.  Such evidence can include price increases or a reduction in output following a consummated merger or other indicia that helps to determine the presence or the likelihood of the exercise of market power.