Health Headlines – July 12, 2021

White House Issues Executive Order on Promoting Competition in the American Economy – Last week, the White House announced that President Joe Biden issued an expansive Executive Order designed to enhance competition across multiple sectors of the U.S. economy, including healthcare. A King & Spalding client alert detailing the Executive Order can be found here. 

Fifth Circuit Affirms Government’s Unilateral Dismissal of FCA Claims Despite Initially Declining to Intervene – On July 7, 2021, a Fifth Circuit panel upheld a decision by the U.S. District Court for the Eastern District of Texas to grant the government’s dismissal of two qui tam actions under the False Claims Act (FCA) in Texas, despite the government’s initial decision to not intervene. The Fifth Circuit concluded that the government had authority over the lawsuits and could dismiss the claims upon meeting certain conditions and providing adequate reasons for seeking dismissal.

In the underlying FCA actions, two entities (Relators) accused two pharmaceutical companies of participating in a kickback scheme by offering free patient-education services to providers in return for the providers prescribing their products. Of note, the Relator entities were formed solely to file qui tam actions on behalf of their parent organization, National Health Care Analysis Group. The U.S. Attorney’s Office for the Eastern District of Texas initially declined to intervene in the FCA case. One year later, the government elected to exercise the government’s authority to dismiss the claims. The government cited its own two-year investigation and review of supplemental information provided by the Relators as its basis for seeking dismissal. The Fifth Circuit panel rejected the Relators’ contentions that the government acted “arbitrarily and capriciously” when moving to dismiss the case.   

The Fifth Circuit panel explained that the government provided four valid arguments for dismissing the case, which include:

• Insufficient factual and legal support to prove violations of the Anti-Kickback Statute;

• The substantial costs of pursuing the claims;

• Certain policy interests of Medicare and other federal healthcare programs; and

• The investigative methods employed by the Relator’s parent organization to uncover the alleged kickback scheme. 

U.S. Circuit Judge Jennifer Walker Elrod, writing for the panel, noted that the government may move to dismiss a qui tam action once two conditions have been met. First, the government must give notice to the qui tam relator of the government’s motion to dismiss. Second, the district court must provide the relator with an opportunity for a hearing on the motion. The panel concluded that the government satisfied both conditions. 

The Relators argued that they were denied an evidentiary hearing prior to the dismissal of their claims. The Fifth Circuit, however, concluded that the record demonstrated that the Relators had opportunities to present evidence to the magistrate judge, including witness testimony. The Fifth Circuit further explained that the magistrate judge did not prevent the Relators from presenting the witness, and that the Relators made the strategic decision not to call the witness forward. The panel concluded that the Relators were afforded a hearing, and therefore, the second condition for dismissing a qui tam action had been met. 

In a concurring opinion, U.S. Circuit Judge Patrick E. Higginbotham acknowledged the unique circumstances in which the claims were dismissed. Judge Higginbotham noted that under Congress’ qui tam regulatory scheme, the government may assume the prosecution of a claim filed by a relator or may allow the relator to pursue the claim alone. However, Judge Higginbotham stated that the government’s control over a qui tam claim is less certain, including its authority to file motions to dismiss, when it first decides not to intervene but returns to the litigation at a later stage.  Judge Higginbotham ultimately determined that the government may dismiss the case given that (i) the Relators had the opportunity to challenge the government’s motions to dismiss in a hearing and (ii) the government provided legitimate reasons for dismissing the claims. Judge Higginbotham concluded that the government could have simply “prevented the relators from being involved at the start. . . [t]he government did neither here, but when it chose to dismiss it, it gave legitimate reasons for doing so, ones which sound mostly in policy choices.”

The Fifth Circuit’s opinion is available here.

Reporter, Dennis Mkrtchian, Austin, +1 512 457 2068, dmkrtchian@kslaw.com.

D.C. District Court Upholds HHS’s 2013 Policy of Including Part C Days in the Medicare Fraction of the DSH Calculation––On July 7, 2021, the U.S. District Court for the District of Columbia ruled in favor of HHS and upheld HHS’s 2013 rule readopting its policy of including Part C days in the Medicare fraction of the disproportionate share hospital (DSH) adjustment calculation. Plaintiffs in the case were a group of over 30 safety-net hospitals that challenged the rule as arbitrary and capricious. The Court rejected Plaintiffs’ arguments and held HHS’s promulgation of the rule complied with the Administrative Procedure Act (APA).  

The DSH adjustment is a supplemental payment HHS makes to compensate hospitals for treating high percentages of low-income patients. The formula HHS uses to calculate the DSH adjustment includes a fraction that depends on whether the phrase “entitled to benefits under Part A” includes individuals who are eligible to receive benefits under Medicare Part A, but opt to receive benefits under Medicare Part C instead. 

The dispute over HHS’s formula for calculating hospitals’ DSH adjustment goes back nearly 20 years. In 2003, HHS proposed to “clarify” its practice of excluding Medicare Part C days from the Medicare fraction of the DSH calculation  (the 2003 Proposed Rule). In 2004, HHS reversed course and adopted a policy to treat Part C days as being days entitled to benefits under Part A and include them in the Medicare fraction (the 2004 Rule). The D.C. Circuit ultimately found the reversal violated notice-and-comment rulemaking requirements of the APA because it was not a “logical outgrowth” of the 2003 Proposed Rule,” but left open the question of whether notice and comment rulemaking was required for this type of policy change. See Allina Health Services v. Sebelius, 746 F.3d 1102, 1106 (D.C. Cir. 2014) (Allina I). In Allina II, the D.C. Circuit found that the Medicare statute requires notice and comment rulemaking. Allina Health Services, et al. v. Price, 863 F.3d 937 (D.C. Cir. 2017) (Allina II). The Supreme Court upheld that decision in 2019. Azar v. Allina Health Servs., 139 S. Ct. 1804, 204 L. Ed. 2d 139 (2019).

In May 2013, while Allina I was pending on appeal, HHS issued a notice of a new rulemaking with the intent to readopt the 2004 Rule’s interpretation of the phrase “entitled to benefits under Part A.” The new rule was finalized in August 2013 (the 2013 Rule). 

Plaintiffs challenged the 2013 Rule as arbitrary and capricious on three grounds. First, Plaintiffs contended HHS failed to both acknowledge and explain the agency's reasoning for its change in agency policy. The Court rejected the argument and found HHS provided “a variety of reasons explaining why HHS believes the new interpretation to be the better policy.” The 2013 Rule “engaged in-depth recounting of HHS's policy and practice regarding the treatment of Part C days dating all the way back to 1990” and HHS expressly acknowledged that prior to 2004 Medicare Part C were generally not part of DSH adjustment calculation. 

Next, Plaintiffs contended HHS failed to consider the significant financial consequences of the policy change on safety-net hospitals. However, the Court agreed with HHS that, because the agency’s position turned on its understanding of the statutory language, “policy factors such as the financial repercussions of the rule do not qualify as a relevant or important consideration that demand agency consideration prior to promulgation.” Nonetheless, the Court found substantial evidence supported HHS’s conclusion that, because the 2013 Rule “is consistent with [HHS’s] longstanding policy,” there would be no “additional savings or costs to the Medicare program, and by inference, to hospitals[.]” In this regard, the Court added that the D.C. Circuit’s “vacatur of the 2004 Rule [in Allina I] . . . did not magically erase th[e] history [of HHS’s prior inclusion of Part C days in the Medicare fraction].”

Finally, Plaintiffs contended HHS failed to meaningfully address comments regarding an alleged inconsistency with the 2013 Rule's interpretation of the phrase “entitled to benefits.” The court identified specific points in the record where HHS addressed these comments and held “the record clearly shows that the Secretary responded to these comments in a way that showed what issues were considered and why the agency reacted to them as it did.”

The case is Fla. Health Sci. Ctr. v. Becerra, No. 19-cv-3487 (RC), 2021 WL 2823104, (D.D.C. July 7, 2021).  The full opinion is available here.

Reporter, Nicholas Kump, Sacramento, +1 916 321 4817, nkump@kslaw.com.

OIG Issues Favorable Advisory Opinion Regarding Pharmaceutical Manufacturer Arrangement to Provide Financial Assistance to Potentially Eligible Patients – Last week, OIG posted Advisory Opinion No. 21-08 regarding a pharmaceutical manufacturer’s arrangement to provide financial assistance in the form of transportation, lodging, and meals to patients potentially eligible for treatment with the pharmaceutical manufacturer’s drug. OIG concluded that it would not impose administrative sanctions under the Federal Anti-Kickback Statue, as the requisite intent did not appear to be present, nor under the civil money penalties law relating to beneficiary inducements (the Beneficiary Inducements CMP), as the arrangement promotes access to care and poses a low risk of harm to patients and Federal health care programs within the meaning of an exception to the Beneficiary Inducement CMP (the Promotes Access to Care Exception). 

The financial assistance pertains to a one-time gene therapy (the Drug) approved by the U.S. Food and Drug Administration for the treatment of individuals who are confirmed to have a rare, inherited retinal disease caused by mutations (the Genetic Disorder) and who have viable retinal cells. The Drug has the potential to increase vision; there are no other pharmacological treatments available to patients with the Genetic Disorder.

To receive treatment with the Drug, patients must (1) undergo a genetic test to confirm the Genetic Disorder, (2) receive an initial evaluation by the treating physician at an approved treatment center to determine whether the patient has viable retinal cells, (3) receive a surgical injection of the Drug in each eye, as applicable, at least six days apart, at an approved treatment center, and (4) have a post-operative appointment to check the patient’s status. Further, patients are advised to lie in a supine position for as much as 24 hours after the surgical injections and to avoid air travel until any air bubbles formed during the surgical injection dissipate and are confirmed to have dissipated, which may take as long as a week.

The Drug is administered in hospital outpatient settings at facilities that meet certain objective criteria and have been approved by the pharmaceutical manufacturer to serve at treatment centers for the Drug. The pharmaceutical manufacturer has approved 10 treatment centers and expects that even when all facilities that are both willing and qualified to administer the Drug are approved, there will only be 13 to 18 approved treatment centers. Accordingly, patients who live more than 2 hours driving distance, or 100 miles, from an approved treatment center are eligible for financial assistance for transportation, lodging, and meals associated with (1) an initial consultation to determine if the patient has viable retinal cells necessary for administration of the Drug; and (2) administration of the Drug (if the patient has viable retinal cells) and one follow-up appointment. Further, patients eligible for financial assistance who are federal health program beneficiaries must also (1) declare themselves unable to obtain the consultation or Drug due to the necessary travel and lodging expenses and (2) have a verified household gross income that is equal to or below 600 percent of the Federal Poverty Level. Finally, if a third party provides for coverage for any travel-related costs, the pharmaceutical manufacturer will not do so. The pharmaceutical manufacturer certified that it offered the financial assistance to patients regardless of insurance status.

OIG concluded that the arrangement implicates the Federal Anti-Kickback Statute because the free transportation, lodging, and meals constitute remuneration that may be intended to induce patients to purchase the Drug and to receive other federally reimbursable items and services provided by the approved treatment centers. Further, because the financial assistance could enable patients to visit approved treatment centers that patients would not otherwise have selected for treatment, the assistance also constitutes renumeration to the treating physicians and to those approved treatment centers in the form of the opportunity to earn fees related to administering the Drug. Notwithstanding OIG’s concerns, OIG concluded that the risk of fraud and abuse presented by the pharmaceutical manufacturer’s financial assistance, in this case, was sufficiently low under the Federal Anti-Kickback Statute because: (1) the financial assistance enables access to the Drug for Federal health program beneficiaries who may otherwise be unable to obtain the Drug due to the travel and lodging expenses; (2) the financial assistance for travel and lodging enables treatment consistent with the Drug’s label, and is not used as a marketing tool to drive patients to use the Drug; (3) the approved treatment center network is limited, and approved treatment centers are not required to administer a particular volume of the Drug as a condition of remaining in the network; (4) as the Drug is a one-time therapy, administered only to a patient population with an objective verifiable basis for confirming eligibility for the Drug, the risk of the financial assistance interfering with clinical decisions is low; and (5) the financial assistance arrangement includes safeguards that mitigate risk and fraud, e.g., no financial assistance if third-party coverage available.

OIG concluded that the financial assistance would also likely induce patients to select approved treatment centers and treating physicians that patients otherwise may not have selected for federally reimbursable items and services, therefore implicating the Beneficiary Inducements CMP. However, OIG also concluded that the financial assistance satisfied the “Access to Care Exception” to the Beneficiary Inducements CMP, as (1) the financial assistance was available only to patients with incomes equal to or below 600 percent of the Federal Poverty Level, when other coverage was not available, and reduced economic barriers to safe treatment in accordance with the Drug’s label; and (2) the financial assistance carried a low risk of interfering with clinical decision making due to its enabling patients to receive treatment in accordance with the Drug’s label.

Advisory Opinion No. 21-08 is available here.

Reporter, Christopher C. Jew, Los Angeles, + 1 213 443 4336, cjew@kslaw.com.

OIG Issues Additional Favorable Advisory Opinion Regarding Medigap Plan and Preferred Hospital Organization Arrangement – On July 7, 2021, OIG posted Advisory Opinion No. 21-07 relating to a proposed arrangement between a Medigap Plan and a Preferred Hospital Organization (PHO). The proposed arrangement involves (i) a discount on policyholder’s Medicare Part A deductible, (ii) a policyholder premium credit, and (iii) a monthly administrative fee to the PHO. The arrangement is designed to incentivize the Medigap plan’s policyholders to seek inpatient care from a hospital within the PHO network. OIG concluded that the proposed arrangement poses a sufficiently low risk of fraud and abuse under the Federal Anti-Kickback Statute and it would not impose administrative sanctions under the Beneficiary Inducements Civil Monetary Penalty (CMP) in connection with the proposed arrangement. The proposed arrangement and OIG’s analysis is nearly identical to three advisory opinions issued in May, Advisory Opinions Nos. 21-03, 21-04, and 21-05. Additional analysis regarding those advisory opinion is available here. 

Advisory Opinion No. 21-07 is available here.

Reporter, Isabella E. Wood, Atlanta, + 1 404 572 3527, iwood@kslaw.com.

ALSO IN THE NEWS

King & Spalding Webinar - What Providers Need to Know About the No Surprises Act Interim Final Rules Issued on July 1, 2021 – On Tuesday, July 20, 2021, at 12:30 P.M. Eastern, King & Spalding will be hosting a one-hour roundtable webinar to discuss the regulations issued by CMS on July 1, 2021, regarding the implementation of the new federal No Surprises Act. The webinar will discuss what providers need to know in deciphering the new interim rules, including how CMS will determine the qualifying payment amount under the Act, and how that determination will affect providers’ financial relationships with both patients and payers. Presenters will also discuss the notice and consent requirements under the interim rule and the particular areas on which CMS has requested comments. Finally, presenters will discuss the provider coalition that King & Spalding is forming to address the No Surprises Act and ensuing regulations.  King & Spalding presenters include healthcare regulatory and litigation experts John Barnes, Amanda Hayes-Kibreab, Joel McElvain and Glenn Solomon. You can register for the webinar here.

King & Spalding Webinar – The Landmark Dred Scott Decision & a Journey to Reconciliation