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Legal Insights and Perspectives for the Healthcare Industry

Emerging as an industry disrupter, the Office of Inspector General for the US Department of Health and Human Services (OIG) has waded knee-deep into health policy and economics in proposing dramatic changes to the anti-kickback discount safe harbor protection. Its latest move targets certain industry sectors, proposing to remove their protection from administrative and criminal prosecution in connection with rebates and price reductions for prescription drugs.

Under the proposed rule issued February 6, the OIG proposes to amend the language of the existing discount safe harbor to no longer protect price reductions from prescription drug manufacturers to sponsors, MA plans, or Medicaid managed care organizations (MCOs), or to pharmacy benefit managers (PBMs) under contract with those entities, in connection with the sale or purchase of prescription drugs (unless the price reduction is otherwise required by law). The proposal is elegant and simply excludes from the definition of a “discount” price reductions or other remuneration paid from a drug manufacturer to sponsors and MA plans, Medicaid MCOs, and PBMs. If a price reduction is not a discount, it is not excepted or protected and can be subject to enforcement. No other health industry sector is apparently targeted for this administrative rule change. 

The healthcare industry awaits the US Supreme Court’s decision in Azar v. Allina Health Services with nervous anticipation. The high court stepped in to settle the dispute and the broader legal question developing among the circuit courts relating to the Centers for Medicare & Medicaid Services’ (CMS) authority to adopt so-called “interpretive rules” affecting significant Medicare program policies. CMS asserts that it possesses such authority under the Medicare Act based on an analogous exception in the more general Administrative Procedures Act (APA), which permits agencies to adopt interpretive rules, and CMS has used this presumed authority to sidestep the formalities of notice and comment rulemaking in certain Medicare policy changes. In the instant case, CMS was defending its ability to change, without notice and comment, its construction of the statutory phrase “entitled to Medicare Part A” in the Medicare disproportionate share (DSH) payment formula, a change that ultimately worked to dilute the amount of Medicare DSH payments for hundreds of hospitals. The US Court of Appeals for the DC Circuit rejected CMS’s argument.

The 2017 Tax Cuts and Jobs Act, Section 4960 imposes a 21% excise tax on certain executive compensation in excess of $1 million as well as certain excess parachute payments paid to a “covered employee” by tax-exempt entities, including tax-exempt hospitals and health systems. Recently, the Internal Revenue Service issued Notice 2019-09, which provides interim guidance on such topics as identifying covered employees, calculating remuneration under Section 4960, and allocating excess parachute payments. In a recent LawFlash, partner Mims Maynard Zabriskie and associate Anna M. Pomykala offer a timely analysis of Notice 2019-09 and identify some of the compliance challenges.

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Does a relator have a shorter statute of limitations period than the United States to pursue a False Claims Act (FCA) case when the United States has declined to intervene? A split among the circuit courts has created an opportunity for the US Supreme Court to resolve this vexing question and potentially confirm whether relators are government officials under the statute. In issuing certiorari to the US Court of Appeals for the Eleventh Circuit, in Cochise Consultancy Inc. v. United States, ex rel. Hunt, the Court will address the limitations issue against the backdrop of a growing litigation trend in declined qui tams and lengthy seal durations when sued defendants have no idea they’ve been sued for many years. Partner Kathleen McDermott breaks down the Cochise appeal—characterized in a recent Morgan Lewis LawFlash as “a hot case to watch”—and offers a timely analysis of the case, and the potential legal consequences of a decision by the US Supreme Court to level set the FCA statute of limitations provisions.

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A longstanding source of frustration among providers facing overpayment determinations is the inconsistent application of statistical sampling and extrapolation by Medicare contractors. This, coupled with the contractor’s unfettered discretion to determine when extrapolation will be used and what constitutes a sustained or high level of payment error, can result in enormous negative financial consequences for providers. In a recent update to the Medicare Program Integrity Manual, the Centers for Medicare and Medicaid Services sets out clarifying guidance and accountability mechanisms for Medicare contractors to follow when performing statistical sampling, including when extrapolation of overpayment determinations is permitted. It also affords providers with greater opportunities for confirming the appropriateness of the extrapolation methodology including compliance by Medicare contractors with the updated guidance. An exception for CMS and the Medicare contractors—that failure to follow one or more requirements contained in the guidance may not necessarily be viewed as affecting the validity of the extrapolation—raises questions over how CMS will enforce the updated guidance and the potential for success when challenging poorly performed extrapolations.

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In an opinion released on a Friday evening in mid-December, Judge Reed O’Connor of the US District Court for the Northern District of Texas reignited the simmering debate over the Affordable Care Act’s (ACA’s) ultimate survival when he ruled the entire law unconstitutional in Texas v. U.S. The case, filed by 20 Republican-led states in February 2018, alleges that Congress invalidated the ACA when it zeroed out the individual mandate penalty under the tax reform legislation in 2017. Law360 published an article on December 18, 2018, by Morgan Lewis partners Susan Feigin Harris and Howard Young and senior health policy analyst Kathleen Rubinstein that discusses the decision, its impact, and what to expect next.

US President Donald Trump signed the SUPPORT Act into law on October 24, 2018, in a culmination of a two-year bipartisan effort by lawmakers across multiple committees in both the House and Senate. Law360 published an article on October 25, 2018, by the Morgan Lewis healthcare team that takes a first look at the sweeping new opioid law.

In an article published by Managed Healthcare Executive, Morgan Lewis partners Joyce Cowan and Susan Feigin Harris, and associate Jacob Harper discuss three CMS regulatory actions that managed care organizations will want to watch. These include the final rule on short-term, limited duration health plans; expanded telehealth coverage under the Medicare program; and the CMS announcement that certain quality and patient safety indicators will no longer be reported by CMS to the Hospital Inpatient Quality Reporting Program. As the administration proceeds with its incremental dismantling of the Affordable Care Act, it is important that managed care organizations maintain a watchful eye on emerging CMS policy changes and their potential implications for the industry.

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The HHS OIG recently published a new Fraud Risk Indicator for False Claims Act (FCA) settlements on the risk spectrum for the first quarter of federal fiscal year 2019. Characterized as “an assessment of future risk posed by persons who have allegedly engaged in civil healthcare fraud,” the Fraud Risk Indicator purports to increase transparency by making public where an FCA defendant falls into one of five color-coded categories on a risk spectrum: Highest Risk – Exclusion (red), High Risk – Heighted Scrutiny (orange), Medium Risk – CIAs (yellow), Lower Risk – No Further Action (green); Low Risk – Self-Disclosure (blue).

Noting that the issue of paid prioritization is a “sticking point” for many telehealth providers, in this Hospital Industry Viewpoint, partner William Wilhelm and associate Jacob Harper address some of the questions raised by the FCC’s decision to repeal net neutrality regulations. Recognizing that the FCC’s actions could place more financial pressure on providers, especially those in rural areas, William and Jake discuss what telehealth providers can do now to address this new financial burden.

Read the full Hospital Industry Viewpoint.