Health Care

Governor Newsom signed over 1300 bills and vetoed almost 190 bills in 2024.  Consistent with prior years, in 2024, California enacted multiple laws significantly impacting the health care industry.  From artificial intelligence (AI) to providers to health plans, these new laws require proactive efforts to ensure on-going compliance. 

We highlight below the most important of the heath care-focused bills passed during this year.  Unless otherwise noted, these new laws are effective January 1, 2025.

As part of its Modernization Initiative, the Department of Health and Human Services’ Office of Inspector General (OIG) recently published its first industry-segment specific Compliance Program Guidance, which focuses on skilled nursing facilities (SNFs) (SNF ICPG). Since 1998, the OIG has issued voluntary compliance program guidance documents, each tailored to a specific segment of the health care industry and providing important insights on specific risk areas and tips for implementing an effective compliance program.  In April 2023, the OIG announced a long overdue modernization of these compliance program guidance documents and rolled out its General Compliance Program Guidance the following November.  

Telehealth companies and other industry stakeholders have had a watchful eye towards the end of 2024 and the impending “telehealth cliff” as COVID-era Drug Enforcement Agency (DEA) flexibilities and Medicare expanded telehealth coverage are set to expire. Although a recent temporary joint rule from the DEA and the Department of Health and Human Services (HHS) along with the 2025 Medicare Physician Fee Schedule final rule has provided some hope, questions regarding telehealth access in 2025 and under a new Administration remain unclear. Further, calls continue for increased oversight of telehealth services. 

Building upon prior issues and summarizing activity from July through September, the Fall 2024 PBM Update highlights federal legislative activity and oversight, state legislative activity and oversight, and other noteworthy events and trends affecting the PBM industry.

On November 12, 2024, the drug manufacturer Johnson & Johnson (J&J) filed a lawsuit against the Health Resources and Services Administration (HRSA) in the U.S. District Court for the District of Columbia. The lawsuit relates to J&J’s proposal to require certain 340B covered entities – specifically, disproportionate share hospitals (DSH) – that purchase J&J’s drugs Stelara and Xarelto under the 340B Drug Pricing Program to do so under a rebate model. J&J is challenging HRSA’s threatened enforcement action against the drug maker.

On September 26, 2024, the Centers for Medicare & Medicaid Services (CMS) released a final rule implementing changes to the Medicaid Drug Rebate Program (MDRP). While not the focus of the agency’s rulemaking, stakeholders used the opportunity to comment on the proposed rule to air concerns and grievances related to the 340B Drug Pricing Program (340B Program). Although CMS acknowledged the flood of 340B Program comments, the agency ultimately punted on responding to stakeholders because the comments were outside the scope of the rulemaking. The response from CMS is understandable, but the numerous comments from stakeholders add to the growing calls for additional guidance and improvements to the 340B Program.

Commencing October 2024, CMS will start off-cycle revalidations of all Skilled Nursing Facilities (SNFs).  As part of the revalidation process, SNFs must disclose the additional information required under CMS’ final rule, “Disclosures of Ownership and Additional Disclosable Parties Information for Skilled Nursing Facilities and Nursing Facilities,” which was  released November 17, 2023 (“Final SNF Disclosure Rule”).  

The Department of Health and Human Services (HHS) Office for Human Research Protections (OHRP) recently held its 2024 Exploratory Workshop titled “The Evolving Landscape of Human Research with AI – Putting Ethics to Practice” (the Workshop). Although the individual presentations and panel discussions throughout the Workshop covered a range of topics and raised a number of interesting questions and hypotheticals, the panelists did not draw any specific conclusions or reach any kind of consensus about next steps to address the critical issues. Even so, the panelists provided some crucial insights that companies and regulators must grapple with in the context of expanding use cases for AI in human research and creating rules governing such uses.

On September 30, 2024, a federal district court judge held that the qui tam provisions of the False Claims Act (FCA) violate the Appointments Clause of Article II of the Constitution.  U.S. ex rel. Zafirov v. Fla. Med. Assocs., LLC, C.A. No. 8:19-cv-01236-KKM, 2024 U.S. Dist. LEXIS 176626 (M.D. Fla. Sept. 30, 2024) (“Zafirov”).  While Zafirov’s holding is novel, the constitutional issue raised in that decision is not.

On September 28, 2024, California Governor Gavin Newsom vetoed California Assembly Bill 3129 (AB-3129) originally introduced by California Attorney General Rob Bonta (AG) and Assembly Speaker pro Tempore Jim Wood and passed by the California legislature earlier in the month.  While the California legislature can override the Governor’s veto, legislators likely will not take this extraordinary step, which has not been taken in several decades.

In its August 2024 issue, the journal Environmental International published an article called Tampons as a Source of Exposure to Metal(loid)s. The article reports on the results of a recent study by researchers from Columbia, UC Berkeley, and Michigan State that evaluated the presence of metals in different tampons. The research team evaluated 60 samples of tampons, representing 30 unique products from 24 different brands, for the presence of 16 different metals. The researchers found that all the tampons evaluated contained measurable concentrations of each of the 16 metals, including toxic metals such as lead, arsenic, and zinc.

As we enter into the final months of 2024, new developments in the administration of the 340B Drug Pricing Program signal that additional reform may be on the way. Although recent revisions to the 340B program’s administrative dispute resolution (ADR) process represented a positive development in program reform, many questions remain as to how the Health Resources and Services Administration (HRSA) along with Congress may resolve stakeholder concerns with the drug pricing program’s future.

Last week, Texas Attorney General Ken Paxton filed a complaint in federal district court against HHS and the Office for Civil Rights (OCR) challenging a recently issued rule strengthening protection of protected health information (PHI) related to reproductive health. As summarized in a previous post, the HIPAA Privacy Rule to Support Reproductive Health Care Privacy (Final Rule), generally prohibits disclosure or use of PHI by a covered entity or their business associate for purposes of criminal, civil, or administrative investigations into persons for seeking, obtaining, providing, or facilitating reproductive health care under lawful circumstances. In its complaint, Texas argues that the Final Rule is unlawful and seeks to have it vacated.

Effective immediately, on August 22, 2024, the Office of Health Care Affordability (OHCA) adopted revisions to the cost and market impact review (CMIR) regulations (Revised Regulations), which govern California’s pre-closing health care transaction review process. As discussed in our prior post, certain health care entities must provide OHCA with notice of a transaction at least 90 days prior to closing. The Revised Regulations, among other things: (1) expand who must file a notice; (2) narrow the applicability of the health care professional shortage area threshold; (3) clarify calculation of California-derived revenue; (4) clarify confidentiality of expedited review request documents; and (5) add a required attestation.

On August 15, 2024, CMS announced the results of the first round of the negotiated prices between CMS and participating drug manufacturers for the 10 selected drugs under the Inflation Reduction Act’s (IRA) Medicare Drug Price Negotiation Program (MPN or Program). In all, reactions to the MPN results varied: Reuters reported that executives from four of the manufacturers selected in the first round of negotiations stated that they do not expect the negotiated prices to significantly impact their businesses; meanwhile, in its press release announcing the maximum fair prices (MFPs), CMS touted an estimated $1.5 billion in Medicare prescription drug out-of-pocket cost savings for Medicare beneficiaries when the negotiated prices go into effect in 2026. 

Obtaining Medicare coverage and reimbursement for medical devices is notoriously more difficult than for drugs or biologics, and any progress on expanding coverage pathways has been agonizingly slow for industry stakeholders. An announcement on August 7, 2024 by the Centers for Medicare and Medicaid Services (CMS) of a final notice for the Transitional Coverage for Emerging Technologies (TCET) pathway was therefore a welcome development. However, digging under the surface of the TCET pathway uncovers some less than thrilling details. CMS’s failure to address stakeholder proposals to modify the TCET program has increased interest and advocacy around Congress’s consideration of the Ensuring Patient Access to Critical Breakthrough Products Act. We explore both the shortcomings of the TCET pathway and the possible legislative solutions to its perceived gaps below.

Many life sciences stakeholders are familiar with “traditional” designation programs operated by the Food and Drug Administration (FDA) in exercising its medical product authorities, such as the orphan drug designation and breakthrough therapy/breakthrough device designation programs. These designation programs follow a typical paradigm – (1) a product developer demonstrates to FDA that its candidate meets certain qualifying criteria; (2) FDA grants the relevant designation to the product candidate in question; and (3) the product developer then benefits from an increased frequency of interactions with the agency during continued development of the product and/or a valuable advantage that’s secured upon the product’s future marketing authorization (e.g., orphan exclusivity or a priority review voucher). 

The Department of Justice (DOJ) recently filed a complaint against Erlanger Health System (Erlanger), a county-owned public health system, and two of its Tennessee hospitals alleging that the health system systemically violated the Stark Law from 2014-2021 and “knowingly” submitted claims for hospital procedures in violation of the False Claims Act. The lawsuit was initially brought as a qui tam (whistleblower) lawsuit filed by a former Chief Compliance Officer and a former Chief Financial Officer of Erlanger. While fair market value compensation is a key criterion for most Stark Law exceptions, this lawsuit is one of the few enforcement actions initiated by the DOJ focused on fair market value compensation paid to employed physicians. This blog post covers three key takeaways from the DOJ’s allegations against Erlanger.

On June 28, 2024, the Food and Drug Administration (FDA) released draft guidance for industry, titled Diversity Action Plans to Improve Enrollment of Participants from Underrepresented Populations in Clinical Studies (the Draft Guidance), for public review and comment. The Draft Guidance was issued pursuant to a directive from Congress in the Food and Drug Omnibus Reform Act (FDORA), signed into law in December 2022, which required FDA to issue or update guidance on diversity action plans that sponsors submit for certain clinical studies of investigational drugs and medical devices. The Draft Guidance also serves to update guidance that FDA previously issued on the topic in April 2022.