Health Care

Physician judgment and medical necessity increasingly are a focus of fraud and abuse enforcement actions, with statistical analysis of procedure volumes used to flag potential cases. Last week, the Atlantic published this recent article discussing a significant 2018 decision of the Tenth Circuit Court of Appeals in United States ex rel. Polukoff v. St. Mark’s Hospital, et al., No. 17-4014 (10th Cir. Jul. 9, 2018), in which the court held that a physician’s medical judgment concerning medical necessity of a particular treatment for two specific cardiac conditions could be “false or fraudulent” under the federal False Claims Act (FCA). Our colleague, Brian Dunphy, covered the 2018 decision on this blog here. The Tenth Circuit ultimately held that a “doctor’s certification to the government that a procedure is ‘reasonable and necessary’ is ‘false’ under the FCA if the procedure was not reasonable and necessary under the government’s definition of the phrase.”

On Friday, August 6, 2021, Pharmaceutical Research and Manufacturers of America (PhRMA), the preeminent trade association representing pharmacies companies, announced revisions to its Code on Interactions with Health Care Professionals (PhRMA Code) that will become effective January 1, 2022. The PhRMA Code is a voluntary code for pharmaceutical companies, but its standards are considered to be best practices and are commonly adhered to by pharmaceutical and medical device companies. Moreover, some states (e.g. California, Massachusetts, Nevada, and the District of Columbia) require pharmaceutical companies to adopt a code consistent with the PhRMA Code.

The changes to the PhRMA Code are undoubtedly in response to a November 16, 2020, Special Fraud Alert from the Department of Health and Human Services’ Office of the Inspector General (OIG), on “fraud and abuse risks associated … speaker programs.” (For additional information on the OIG’s Special Fraud Alert, please see our November 25, 2020 blog post.) Speaker programs are a common practice in the industry and generally entail pharmaceutical and medical device companies retaining health care professionals (HCPs) to speak or present to educate their peers on the companies’ drugs or devices.

As previously discussed, many of the telehealth flexibilities in place during the COVID-19 pandemic are set to expire at the end of the federal Public Health Emergency (PHE), unless federal and state legislators act to make the changes permanent. A recent bill introduced by Representative Robin Kelly (D-IL) suggests that Congress is interested in expanding access to telehealth services for Medicare and Medicaid beneficiaries if the benefits of increased access to telehealth can be demonstrated. According to a press release issued by Representative Kelly’s office, “Telehealth has the potential to help equalize healthcare access for underserved populations. However, we need data to understand utilization, cost, fraud, privacy and how to serve those left behind by the digital divide.”

As the spread of the Delta variant of COVID-19 and the reality of inconsistent vaccine uptake lead to growing case numbers across the country, many of us are wondering, how did we get here and what’s next?

Has the Food and Drug Administration (FDA) finally ushered in a new era for the U.S. biosimilar marketplace? Many in the industry are hopeful after the Agency approved its first interchangeable biosimilar, Mylan’s Semglee (insulin glargine) on July 28, 2021. Mylan’s Semglee is a long-acting human insulin analog indicated to improve glycemic control in adults and pediatric patients with type 1 diabetes mellitus and in adults with type 2 diabetes mellitus. It is both biosimilar to and interchangeable with Lantus (insulin glargine) meaning it can be substituted for Lantus at the pharmacy-level without the need for a prescription from a healthcare professional. This approval is important because it furthers FDA’s commitment to supporting a competitive marketplace for insulin products. The availability of interchangeable biosimilar products can provide more treatment options to patients, lowering the treatment costs and enabling greater access for more patients. One can hope that this approval marks the beginning of a trend in the biosimilar marketplace.

Earlier this week, a bipartisan group of Senators led by Senator Chuck Grassley (R-Iowa) introduced two pieces of proposed legislation, one of which would amend the existing False Claims Act (FCA) and the other of which would amend the Program Fraud Civil Remedies Act of 1986 (the PFCRA) to create the Administrative False Claims Act of 2021 (AFCA). The AFCA would focus on smaller claims than does the FCA. Senator Grassley described the bills as being intended to “help recoup even more money by clarifying confusion after the Escobar case” and as being needed more than ever “to fight the significant amounts of fraud we are already seeing” related to the trillions of dollars Congress has appropriated for COVID relief.

For many health care systems, patient leakage – when patients leave a health care system’s network in favor of out-of-network providers – is a rampant problem that results in substantial lost revenue. While sometimes patient leakage is just a result of patient choice, often the issue lies with employed or contracted physicians referring patients for services outside the network. Many health care systems may be wary of including in their physician contracts requirements that physicians refer patients exclusively within the network (otherwise known as directed referral requirements) based on concerns with interfering with physicians’ medical judgment and/or the common misconception that the Stark Law prohibits directed referral requirements.

To the contrary, the Stark Law actually permits directed referral requirements, provided that certain conditions are met. CMS recently enacted changes to the Stark Law regulations, effective January 19, 2021, that provide additional clarity on how health care providers can permissibly use directed referral requirements. These recent changes have seemingly triggered new awareness and interest in how health care systems can utilize directed referral requirements to combat patient leakage.

On June 24, 2021, the Food and Drug Administration (FDA) issued the long-awaited Remanufacturing of Medical Devices Draft Guidance, which describes the agency’s current thinking on activities that meet the definition of remanufacturing and a process for determining whether an act done to an original equipment manufacturer’s (OEM’s) legally marketed finished device is considered remanufacturing (the “Draft Remanufacturing Guidance”).

On Friday, July 9th, President Biden released an Executive Order “to promote competition in the American economy” and to “to reduce the trend of corporate consolidation” (the “Order”). As part of this Order, the Biden Administration specifically targets competition in the pharmaceutical industry and sets forth policies to combat the high cost of prescription drugs. As the Administration’s first major policy initiative on drug pricing, this Order may serve as a preview of the Administration’s drug pricing reform agenda. For additional information about the Executive Order, please see our Antitrust colleagues' alert on the Order's initiatives specifically earmarked for the Federal Trade Commission and the Department of Justice’s Antitrust Division.

Not surprisingly, in the wake of the COVID-19 pandemic, California legislators proposed hundreds of health-related bills in 2021. For those who are unfamiliar with the intricacies of the Golden State’s legislative process, June 5, 2021 was the deadline for the California Legislature to pass bills introduced in their house of origin. Accordingly, during the week of June 7th, the Senate and Assembly resumed policy committee hearings, reviewing measures from the opposite house.

Along with proposed legislation addressing health care funding, health care access, mental health and substance abuse treatment, disaster preparedness, and other issues brought to the forefront by the pandemic, there are multiple bills that seem to be aimed at various concerns raised by corporate involvement in the provision of health care. Below is an update on a few of the bills that fall into the latter category, including SB 642, which we discussed in more detail in a prior post.

One of the spillover effects of the COVID-19 pandemic has been the increase in opioid-related deaths. These deaths overwhelmingly affect working-class Americans with limited access and resources to lifesaving drugs such as buprenorphine and naloxone. As a result, the Department of Health and Human Services (HHS) issued the Practice Guidelines for the Administration of Buprenorphine for Treating Opioid Use Disorder (Practice Guidelines) through a waiver of certain certification requirements prescribed by law. The Practice Guidelines remove a longtime prerequisite tied to training and counseling that several practitioners have cited as a barrier to treating patients with Opioid Use Disorder (OUD). The Practice Guidelines could not come soon enough, as a recent study indicates that individuals with OUD experienced decreased access to treatments during the pandemic.

Although we’ve now entered June of 2021 and President Biden has yet to nominate someone to serve as the Commissioner of Food and Drugs, current Acting Commissioner Janet Woodcock and her Senate-confirmed boss, Department of Health and Human Services (HHS) Secretary Xavier Becerra, have wasted no time reviewing and revoking regulatory actions implemented in the waning days of the prior Administration’s tenure in charge of the Executive Branch. As we reported in April, the two leaders co-signed a decision to reverse January 2021 actions by the Trump Administration to exempt a large number of medical device types from Food and Drug Administration (FDA) premarket review, noting in their rationale that not only was FDA not consulted in the prior action but HHS’s original determinations “lacked adequate scientific support, contained multiple errors, and were ultimately flawed.”

On May 27, a similar reversal notice with strikingly similar language about the lack of FDA input or the inclusion of appropriate regulatory expertise in the decision-making process – and once again co-signed by Secretary Becerra and Dr. Woodcock – was published in the Federal Register. The target this time was the prior Administration’s announcement in November 2020 that it was withdrawing all FDA guidance documents prepared and issued as part of the agency’s Unapproved Drugs Initiative (UDI) and terminating the UDI program; that termination notice cited drug costs and competition-related concerns as well as the FDA’s failure to develop and announce the UDI through notice-and-comment rulemaking. We discussed this surprise action by the prior HHS leadership in our 2020 year-in-review blog post and speculated whether a more consumer-protective Department led by Secretary Becerra would be likely to reverse course (see here).

During a recent panel discussion hosted virtually by the American Bar Association, attorneys from the Department of Justice (DOJ) and certain U.S. Attorneys’ Offices known for health care fraud enforcement provided valuable insight into key areas of health care fraud enforcement, including opioid-related enforcement, kickbacks to providers involving speaker programs, and allegations involving electronic medical records (EMR) vendors.  The panel also addressed the role of private equity funds as owners and operators of companies under investigation and provided observations and recommendations about effective compliance programs and their role in resolving health care fraud matters.

Pharmaceutical and medical device manufacturers should be advised that the government is using its enforcement authority under the Open Payments Program (otherwise known as the Sunshine Act) in conjunction with the Anti-Kickback Statute (AKS) against manufacturers for alleged kickbacks paid to referring physicians. On May 19, 2021, the Department of Justice (DOJ) announced its second publicly-available settlement involving alleged violations of the Open Payments Program, following on the heels of the DOJ’s first publicly-available Open Payments Program settlement back in October 2020.

The allegations for both settlements are very similar; manufacturers allegedly paid referring physicians in the form of meals, travel expense, and entertainment to induce them to use the manufacturers’ medical devices. Working in partnership with the Centers for Medicare & Medicaid Services (CMS), the DOJ asserted not only that the entertainment expenses were kickbacks in violation of the AKS, but also that the manufacturers failed to report to CMS the entertainment expenses as payments to the physicians in violation of the Open Payments Program.

On May 3, 2021, the California Senate Health Committee approved SB-642 “Health care: facilities: medical privileges.” The bill is currently pending in the California Senate. AB-705, which is substantially similar to SB-642, is also pending in the California Assembly. If passed, the law will curtail hospital governing bodies’ ability to make decisions about the medical services provided at the facility without medical staff approval, impose new limitations on arrangements between management services organizations and professional corporations, and add additional factors to the Attorney General’s review and approval of nonprofit health care facility transactions.

On May 17, 2021, the Biden Administration took its first major action impacting the 340B Drug Discount Program.  In a forceful statement, the Administration made plain its views on a major controversy that has pitted drug manufacturers against 340B covered entities for the past year - proclaiming that drug manufacturers are violating the 340B statute by restricting covered entity access to 340B discounts for drugs dispensed through 340B contract pharmacies.