Health Care

Although health care may be well positioned to weather an economic downturn as an industry, certain sectors, including ambulatory surgery, vision, dermatology, dental, and other physician practices will bear the brunt of COVID-19 stay-at-home orders and patients delaying non-emergency care. While the onset of COVID-19 has delayed or derailed many transactions, strategic buyers should consider all of the different transaction tools available them to help maximize value and successfully get to closing. For knowledgeable investors and strategic buyers, now is the time to position yourself to acquire valuable health care assets at steep discounts.

For those unfamiliar with 363 Sales, a 363 Sale couples a flexible and fast process with ample liability protection for willing buyers. The primary benefit to a 363 Sale is that a buyer can acquire the debtor’s assets free and clear of virtually all liens, claims and encumbrances burdening the assets and the debtor. When a target is experiencing severe financial distress, the benefit of acquiring assets “free and clear of all liens” is extraordinarily valuable.

The Trump Administration issued a series of Executive Orders (“EOs” or “Orders”) Friday afternoon related to drug pricing.  Several of the EOs seek to restart stalled or withdrawn policy initiatives previously announced by the Administration.  Brief summaries of the EOs are below, and we will provide more detailed analysis this week.

Despite the COVID-19 pandemic, the House Energy & Commerce Committee continues work on several health policy issues, including Orphan Drug Act reform and continuous manufacturing.

About a month ago, I predicted on this blog that Food and Drug Administration’s November 2020 enforcement discretion deadline announced as part of its Comprehensive Regenerative Medicine Policy Framework would most likely not be extended. My view was based on a June 17 editorial by agency leadership discussing the risks of unapproved cellular therapy products, which didn’t suggest an extension was forthcoming, as well as an increase in Warning/Untitled Letters related to such products as compared to this time last year. In that earlier blog post I wrote: “Nothing in this newly published editorial suggests that [the Food and Drug Administration (FDA)] will be taking its proverbial foot off the pedal to slow down its efforts towards further oversight of the private stem cell clinic industry after November 2020.”

On July 2, a bipartisan group of six senators introduced legislation to waive 340B eligibility requirements for hospitals participating in the program during the COVID-19 pandemic. S. 4160 permits hospitals that are 340B-eligible based on their disproportionate share (“DSH”) adjustment percentage to maintain eligibility even if their DSH adjustment percentage falls below the requisite threshold.

The U.S. Department of Health and Human Services (HHS) recently released a final rule further amending 42 CFR Part 2 regulations (Part 2) to allow greater sharing of patient records related to substance use disorder (SUD) treatment. For the past few years, we have seen a push to better align the incredibly strict requirements of Part 2 with HIPAA in order to increase care coordination and promote patient outcomes, particularly in light of the opioid epidemic, which has unfortunately escalated during the COVID-19 pandemic.   HHS has been inching toward the harmonization of Part 2 with HIPAA and has now adopted a final rule to address some of the confusion caused by differences between the two regulatory schemes. In conjunction with the release of the final rule, HHS also issued a helpful fact sheet explaining the major changes.

Leading up to a webinar on July 15, 2020, we are publishing a blog series covering the risks of enforcement against companies that received COVID-19 relief funds under the CARES Act and strategies for mitigating those risks.  This third, and final, installment of our series discusses emerging and anticipated criminal enforcement involving COVID-19 relief programs.

On June 26, the Department of Health and Human Services Office of the Inspector General (OIG) issued Advisory Opinion No. 20-03 approving the payment by a discount medical plan organization (DMPO) of a five dollar ($5.00) fee to chiropractors for the referral of new members to the DMPO.  OIG determined that even though the arrangement could result in prohibited remuneration, it would not impose administrative sanctions or civil monetary penalties for violation of the federal Anti-Kickback Statute (AKS). 

Leading up to a webinar on July 15, 2020, we are publishing a blog series covering the risks of enforcement against companies that received COVID-19 relief funds under the CARES Act and strategies for mitigating these risks.  This second installment of our series discusses our predictions related to litigation and enforcement activities. We expect a substantial number of False Claims Act (“FCA”) investigations and lawsuits initiated mainly by whistleblowers (also known as “relators”). The FCA remains the government’s primary enforcement tool for pursuing alleged fraud by recipients of government funds, and FCA claims present substantial risk because the statute permits treble damages and significant per-claim penalties. For example, an erroneous $100,000 loan under the Paycheck Protection Program (“PPP”) can result in $300,000 in FCA damages, or more.

Last Thursday, the Massachusetts Board of Registration in Medicine (BORIM) approved its first permanent telehealth policy. The Board had previously approved this policy on an “interim” basis in response to the COVID-19 pandemic on March 16, 2020. This policy is an important step for the Massachusetts BORIM as it had previously hesitated to provide any formal guidance on the practice of telehealth.

The Centers for Medicare & Medicaid Services (CMS) has taken another step to further the adoption of value-based purchasing within the health care industry. (Readers may recall the Department of Health & Human Services’ two proposed rules – one from CMS and another from the Office of Inspector General – issued late last year, aimed at reducing barriers to value-based arrangements, which we discussed here.) CMS released its new proposed rule to “support state flexibility to enter into innovative value-based purchasing arrangements (VBPs) with manufacturers, and to provide manufacturers with regulatory support to enter into VBPs with payers, including Medicaid.”

Last Friday, the Department of Justice (DOJ) announced another increase to civil monetary penalties assessed under the False Claims Act (FCA), among other statutes. DOJ made these adjustments to account for inflation, in accordance with the Bipartisan Budget Act of 2015, and they apply to penalties assessed after June 19, 2020, for violations occurring after November 2, 2015.

Last week, the Senate Committee on Health, Education, Labor & Pensions (“Senate HELP”) held a hearing entitled “Telehealth: Lessons from the COVID-19 Pandemic," during which the Committee members expressed support for permanently expanding access to telehealth services. In this blog post, we discuss the Committee's proposals and the additional steps needed to permanently expand access to telehealth.

As we discussed in our last update on the Food and Drug Administration’s Comprehensive Regenerative Medicine Policy Framework back in December 2019 (during the much simpler, pre-COVID-19 world), this coming November will conclude the three-year period of enforcement discretion announced by the agency when it first articulated the policies and goals of this “comprehensive framework.” In particular, under the dual-track program announced in 2017, the Food and Drug Administration (FDA) has been focused on: (1) clarifying the regulatory criteria for product marketing through guidance and providing support to legitimate product developers through formal and informal interactions; and (2) removing unapproved, unproven, and potentially unsafe products from the U.S. market.

Since the early days of the pandemic, Mintz’s COVID-19 Compliance & Enforcement Defense Task Force has closely monitored and advised clients on the evolving COVID-19 relief programs, including those created by the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). The CARES Act provided for over $2 trillion in relief funds, which is the largest emergency assistance package in American history. The numerous CARES Act programs have continued to develop through, among other things, the passage of the Paycheck Protection Program and Health Care Enhancement Act, the Paycheck Protection Program Flexibility Act of 2020, and rapidly changing regulatory guidance and FAQs. As one example, the government recently wrestled with whether to make public the list of about 4.6 million entities that received more than $500 billion from the Paycheck Protection Program (PPP) under the CARES Act. After initially refusing to disclose PPP loan recipients, the Small Business Administration and Treasury Department decided to make public the names of entities that received loans larger than $150,000, as well as the dollar range of each loan.

A panel of federal appellate judges has sided with drugmakers by upholding a lower court ruling from 2019 that struck down a regulation proposed by the Department of Health and Human Services (HHS). In a closely watched case, the United States Court of Appeals for the District of Columbia Circuit issued a decision on June 16, 2020 affirming the district court’s judgement that vacated the HHS Drug Pricing Disclosure Rule. This ruling is yet another example of a court invalidating the Drug Pricing Disclosure Rule, which sought to require drugmakers’ television advertisements to disclose the list prices of their prescription drug products.

Late last week, the Department of Health and Human Services’ Office for Civil Rights (OCR) issued guidance aimed at “making sure misconceptions about HIPAA do not get in the way of a promising COVID-19 response,” according to OCR Director Roger Severino. That “promising response” relates to emerging evidence that plasma from recovered patients (often referred to as “convalescent plasma”) may contain antibodies to SARS-CoV-2, the virus that causes COVID-19. Those antibodies could be useful in treating individuals who are sick with COVID-19. The OCR’s guidance addresses how health care providers may contact, in a HIPAA-compliant manner, recovered COVID-19 patients to provide them with information about donating blood and plasma to potentially help other COVID-19 patients.

The Department of Justice (DOJ) has announced its first criminal securities fraud prosecution related to COVID-19, and it involves health care fraud as well. Mark Schena, president of Arrayit Corporation, a publicly traded medical technology company, faces criminal charges in connection with false and fraudulent claims submitted for allergy and COVID-19 testing. The complaint charges Schena with one count of securities fraud and one count of conspiracy to commit health care fraud. From 2018 to present, Arrayit, under Schena’s direction, allegedly submitted or caused the submission of over $5.9 million in Medicare claims and over $63 million in private insurance claims for allergy and COVID-19 tests that were not medically necessary, were not provided as claimed, or were tainted by the payment of kickbacks and bribes.

On March 27, 2020, the President signed into law the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), which in part describes reforms to modernize the regulatory framework for over-the-counter (OTC) monograph drugs. We previously blogged about the surprise addition of the OTC monograph reforms within the CARES Act. On May 29, 2020, the Office of Nonprescription Drugs within the Food and Drug Administration (FDA) held a webinar titled “Monograph Reform is Here!” (a recording of the webinar is available here), which included key highlights from the OTC monograph reform.

In an interview yesterday, CMS administrator Seema Verma expressed support for permanently expanding access to telehealth services after the COVID-19 public health emergency resolves. Here, we explore the nature and duration of the temporary executive and regulatory orders, emergency legislation, and sub-regulatory guidance, which have resulted greater access to telehealth while leaving a fair amount of uncertainty as to what the future of telehealth looks like.