Life Sciences Legal Update

French Ministry of Health Publishes Application Decree for "French Sunshine Act"; Requires Disclosure of Agreements With and Payments to Health Care Practitioners Dating Back to January 1, 2012

Lisa Baird — Thu, 23 May 2013 19:13:46 -0500

Reed Smith’s Global Regulatory Enforcement Law blog features a post on the recent publication of the application decree to the “French Sunshine Act” by the French Ministry of Health. “A Brave New World? The ‘French Sunshine Act’ imposes online disclosure of contracts with HCPs, as well as of payments of ‘advantages’ to HCPs, dating back to 01 January 2012,” written by Daniel Kadar, discusses the specific ways and means that health care companies must disclose agreements with and “advantages” (payment or hospitality, including payment of a contractual fee) provided to health care practitioners ("HCPs") in order to comply with the application decree. Information to be disclosed dates back 18 months, to January 1, 2012, and the first disclosure requirement is set for June 1, 2013. According to Mr. Kadar, this tight timeframe raises compliance issues and has industry calling for reconsideration.

China Life Sciences and Health Industry Client Briefing - April 2013 (May 15, 2013)

Lisa Baird — Wed, 15 May 2013 12:46:24 -0500

This post was written by Katherine Yang, Amy Yin, Vicki Lung, Gordon B. Schatz, Jay J. Yan, John J. Tan, Mao Rong and May Wong.

Reed Smith’s China Life Sciences and Health Industry Client Briefing provides a summary of the monthly news and legal developments relating to China's Pharmaceutical, Medical Device, and Life Sciences/ Health Care Industries.

Approval of Innovative Drugs and Key Sector Generic Drugs to be Expedited
Guangzhou Pharma Case
Fosun Pharma to Acquire Israel-Based Medical Device Manufacturer
Beijing Hosts Traditional Chinese Medicine ("TCM") Training Program
Ministry of Industry and Information Technology ("MIIT") Supports Development of Medical Devices
Changes in the Healthcare Industry
Medical Reforms in China Attract Pharma Giants
State Council Issues Guiding Opinions on the Reform and Improvement of Local Food and Drug Supervision and Management
Healthcare Companies Promote Internet-Based Medical Services

To read the full briefing by Reed Smith China team members, click here.

HHS Considers Amending the HIPAA Privacy Rule to Encourage Reporting of Mental Health Information to the National Instant Criminal Background Check System

Lisa Baird — Mon, 06 May 2013 08:55:10 -0500

This post was written by Jennifer L. Pike and Nancy E. Bonifant.

The Department of Health and Human Services (“HHS”) is seeking comments on a proposal to amend the HIPAA Privacy Rule to expressly permit covered entities to disclose certain mental health information to the National Instant Background Check System (NICS), the federal government’s background check system for the sale or transfer of firearms by licensed dealers.

Federal law prohibits the following persons from possessing or receiving firearms: (1) individuals who have been involuntarily committed to a mental institution; (2) individuals who have been found incompetent to stand trial or not guilty for reason of insanity; and (3) individuals who have been otherwise determined, through formal adjudication process, to have a severe mental condition that results in the individual presenting a danger to themselves or others or being incapable of managing their own affairs (collectively referred to in the proposed rule as the “mental health prohibitor”). Federal agencies are required by the NICS Improvement Amendments Act of 2008 to report to NICS the identities of individuals who are subject to the mental health prohibitor. The Act also authorizes incentives for States to provide such information when it is in their possession.

HHS issued the proposed rule to address concerns that the HIPAA Privacy Rule may be preventing some States from reporting to NICS the identities of individuals subject to the mental health prohibitor. Records related to involuntary commitments and mental health adjudications generally originate in entities in the criminal justice system. Such entities are not HIPAA covered entities, and the records are therefore not subject to HIPAA. However, there may be State entities outside the criminal justice system that are involved in some involuntary commitments or mental health adjudications, and these entities may be HIPAA covered entities. Where a record of involuntary commitment or mental health adjudication originates with a HIPAA covered entity, or the HIPAA covered entity is the State repository for such records, those records are subject to HIPAA. Therefore, the concern is that the individuals identified in such records are not being reported to NICS due to HIPAA compliance considerations.

To address these concerns, HHS is considering whether to amend the Privacy Rule to expressly permit covered entities to disclose limited information to NICS about the identities of individuals who are subject to the mental health prohibitor. Pursuant to the HHS request for comments, the potential exception may limit the information disclosed to the minimum data necessary for NICS purposes, and limit permission to disclose to covered entities that order involuntary commitments, perform relevant mental health adjudications, or are otherwise designated as State repositories for NICS reporting purposes.

HHS is seeking comments on specific questions related to the proposal. These questions are listed in HHS’ Advance Notice of Proposed Rulemaking, which is available here. Comments should be submitted in writing, or electronically at www.regulations.gov, on or before June 7, 2013.

CMS Releases List of Teaching Hospitals; Educational Efforts and Requests for Additional Clarification Regarding the Physician Payment Sunshine Final Rule Continue

Lisa Baird — Fri, 03 May 2013 13:57:28 -0500

This post was written by Elizabeth Carder-Thompson, Katie C. Pawlitz and Nancy E. Bonifant.

In preparation for data collection to begin under the Physician Payment Sunshine Act Final Rule on August 1, 2013, the Centers for Medicare & Medicaid Services (CMS) released yesterday the list of teaching hospital covered recipients to which payments and other transfers of value must be reported by applicable drug and device manufacturers. The list, which will be updated annually by CMS at least 90-days before the beginning of a reporting year, can be found on CMS’ National Physician Payment Transparency Program: OPEN PAYMENTS website and includes approximately 1,100 legal business names that are organized by state and tax identification number.

CMS also announced this week that it will be holding a National Provider Call on Wednesday, May 22, 2013 at 2:30 PM EST, directed at physicians and teaching hospitals. The agenda for the call includes an overview of the Final Rule, key dates, the role of covered recipients and resources available to covered recipients.

Meanwhile, stakeholders and their representatives, including the American Medical Association (AMA) and the Advanced Medical Technology Association (AdvaMed), have continued to seek additional clarification from CMS on a variety of outstanding questions. These questions include whether journal reprints provided by a manufacturer to a physician or teaching hospital have a discernible economic value that triggers reporting requirements, what constitutes a payment or transfer of value to a teaching hospital as opposed to payments or transfers of value to an employee of the teaching hospital, and more. Ideally, CMS will issue further guidance on these issues in sufficient time for applicable manufacturers to prepare for the data collection deadline this summer.

The Scope of HIPAA Preemption in Florida: More Questions than Answers

Lisa Baird — Wed, 01 May 2013 11:37:01 -0500

This post was written by Nancy E. Bonifant and Zachary A. Portin.

On April 9, 2013, the Eleventh Circuit held that HIPAA preempts a Florida statute that requires nursing homes to release medical records of deceased residents to their spouses, attorneys-in-fact and other enumerated parties who request them. In Opis Management Resources LLC v. Secretary Florida Agency for Health Care Administration, the Florida agency that oversees nursing homes cited Opis Management, an operator of nursing homes, for refusing to release medical records to deceased residents’ spouses and attorneys-in-fact. Opis Management challenged the citations arguing that the requesting parties were not “personal representatives” under HIPAA.

The HIPAA Privacy Rule requires disclosures of PHI in only two situations: (1) to the individual, and (2) to the Secretary of HHS. Covered entities must also treat a deceased individual’s “personal representative,” who has authority to act on behalf of the deceased individual or his/her estate, as the individual for purposes of disclosures under the HIPAA Privacy Rule. While HIPAA does not preempt “more stringent” state laws, it sets a floor for privacy protections and supersedes any contrary provision of state law.

The Eleventh Circuit held that HIPAA preempts the Florida statute because it “impedes the accomplishment and execution of the full purposes and objectives of HIPAA and the Privacy Rule,” particularly keeping an individual’s PHI confidential. According to Judge Black, the Florida statute authorizes “sweeping disclosures” that made a deceased resident’s PHI available to certain individuals upon request without any need for authorization and “without regard to the authority of the individual making the request to act in the deceased’s stead.” Interestingly, because the Florida agency failed to timely raise the argument, the court did not consider whether compliance with both laws was possible because HIPAA permits covered entities to disclose PHI as “required by law.”

Opis Management Resources highlights one of the many challenges that covered entities face in trying to achieve compliance under HIPAA and state privacy law. Although the holding suggests that analogous Florida statutes mandating disclosures may too be preempted, the ruling is limited to licensed Florida nursing homes. Clearly, the scope of HIPAA preemption remains unsettled and the issue will likely continue to be determined on a case-by-case basis.

Loose Lips Sink... Providers?

Lisa Baird — Tue, 30 Apr 2013 16:29:03 -0500

This post was written by Zachary A. Portin and Nancy E. Bonifant.

Can a medical corporation be directly liable under New York law for breaching its common law fiduciary duty of confidentiality when a non-physician employee acted outside the scope of his or her employment by making an unauthorized disclosure of an individual’s confidential health information? This is the question that the U.S. Court of Appeals for the Second Circuit posed to the New York State Court of Appeals last month when it requested an advisory opinion from the state’s highest court in order to resolve Doe v. Guthrie Clinic Ltd.

Plaintiff Doe sued various Pennsylvania-based entities (the “Guthrie Defendants”) that owned and operated the Guthrie Clinic Steuben (the “Clinic”) located in New York after one of the Clinic’s nurses sent six text messages to Doe’s girlfriend informing her that Doe was being treated for sexually transmitted diseases. Plaintiff Doe brought several tort claims against the Guthrie Defendants, including a novel claim that the common law cause of action for breach of the fiduciary duty to keep medical records confidential runs directly against medical corporations, even when the employee responsible for the breach is not a physician and acted outside the scope of her employment.

Although HIPAA does not create a private right of action under federal law, an aggrieved patient may avail himself or herself to state law causes of action. For example, New York imposes a general duty to maintain the confidentiality of personal health information as well as a specific common law cause of action against a physician who improperly discloses confidential information. In 2000, the Appellate Division of the New York State Supreme Court also held that a patient was permitted to sue a health insurer whose records clerk wrongfully disclosed treatment information. Nevertheless, the Second Circuit elected to certify the question to the Court of Appeals with regard to the Guthrie Defendants after it concluded that no controlling precedent existed.

A favorable ruling for Plaintiff Doe threatens to vastly expand the scope of liability faced by providers and other entities involved in the delivery of healthcare. Perhaps most concerning from the perspective of providers is the prospect of such entities facing liability under New York law for unforeseeable misconduct committed by non-physician employees. Regardless of the Second Circuit’s ultimate disposition of this legal question, the case underscores the importance of developing and maintaining a robust compliance program to combat such misconduct.

China Life Sciences and Health Industry Client Briefing - March 2013 (April 26, 2013)

Lisa Baird — Fri, 26 Apr 2013 13:32:24 -0500

This post was written by Katherine Yang, Amy Yin, Vicki Lung, Gordon B. Schatz, Jay J. Yan, John J. Tan, Mao Rong and May Wong.

Some important developments during March include:

CFDA Seeks Public Comment on Special Approval Procedures for Innovative Medical Devices
CFDA Allows Manufacturers to Confirm Medical Device Classes
ETView Medical, Ltd. Announces CFDA Clearance of Pre-Marketing Notification Application for the VivaSight-SL Line of Innovative Airway Devices
Executives Call for Pharmaceutical Reform
213 New Varieties of Drugs Added into National Essential Drug Catalogue
MOH and CFDA Solicit Public Comments on Clinical Research on Stem Cells
Govt. to Increase Funding for Medical Reform
Advisers Seeking a Remedy for Private Hospitals
Xiamen Encourages Medical Cooperation
Online Outpatient Appointments to End Misery of Queuing for Hours
China to Clean Up Grassroots Medical Institutions
Clearbridge BioMedics Raises $7.2 Million Funding

To read the full briefing by Reed Smith China team members, click here.

Proposed Rule Would Reward Medicare Fraud Tipsters up to $9.9 Million, Revise Medicare Provider Enrollment Regulations

Lisa Baird — Fri, 26 Apr 2013 11:25:24 -0500

This post was written by Scot T. Hasselman, Andrew C. Bernasconi, Susan A. Edwards and Debra A. McCurdy.

Yesterday the Centers for Medicare & Medicaid Services (CMS) issued a proposed rule that would dramatically increase the potential reward to an individual who provides a tip leading to the recovery of Medicare funds from a current maximum of $1,000 to a maximum of $9.9 million under the Medicare Incentive Reward Program. Since 1998, an individual providing information regarding potential Medicare fraud and abuse to the Department of Health & Human Services’ Office of the Inspector General or the Medicare contractor with jurisdiction over the suspected fraudulent provider or supplier may be eligible to receive 10 percent of the Medicare funds ultimately collected from the tip, or $1,000, whichever is less. Pursuant to the proposed rule CMS issued yesterday, an individual furnishing information that otherwise satisfies the requirements set forth in 42 C.F.R. § 420.405 would be eligible to receive 15 percent of a recovery up to $66 million. Therefore, a tipster could receive up to a $9.9 million reward for any information provided regarding suspected Medicare fraud and abuse.

In the proposed Medicare Incentive Reward Program rule, CMS explains that it “tentatively project[s] a net increase in recoveries of $24.5 million per year as a result of the proposed changes.” In addition, CMS notes that it is modeling the proposed Incentive Reward Program changes on a “highly successful” Internal Revenue Services (IRS) reward program that returned “far greater sums than the existing Medicare [Incentive Reward Program].” Notably, since the implementation of the current Medicare Incentive Reward Program in July 1998, CMS has collected only $3.5 million; in contrast, between 2007 and 2012, the IRS has collected almost $1.6 billion through its reward program. CMS states in the preamble that it proposes to clarify that it will not pay an award if the same or substantially similar information was the basis for a relators share in a qui tam lawsuit under the federal False Claims Act or a state False Claims Act, or is the basis for a pending state or federal False Claims Act suit. However, the proposed regulatory language that would codify this change, found at proposed 42 C.F.R. § 420.405(b)(3), does not specify that this provision would apply to state False Claims Acts.

The proposed rule also would pay the reward amount only to the first individual who makes a report. In addition, among other proposed changes to the regulations found at 42 C.F.R. § 420.405, CMS proposes to emphasize that it has exclusive discretion in determining the amount of a reward and whether the reward criteria are met. The existing regulation provides for numerous other exceptions and conditions and generally excludes federal and state law enforcement officials, federal government employees, and federal contractors, from eligibility.

CMS also proposes several revisions to Medicare’s provider enrollment regulations, such as:

Allowing CMS to deny the enrollment of providers, suppliers, and owners affiliated with an entity that has unpaid Medicare debt;
Expanding the instances under which a felony conviction can serve as a basis for denial or revocation of a provider or supplier's enrollment;
Enabling CMS to revoke Medicare billing privileges if it determines that the provider or supplier has a pattern or practice of submitting claims for services that fail to meet Medicare requirements; and
Limiting the ability of ambulance suppliers to “backbill” for services performed prior to enrollment.

The proposed rule will be published in the April 29, 2013 edition of the Federal Register, and comments will be accepted for 60 days thereafter.

CMS and OIG Propose Extension of Electronic Health Record Donation Protections

Lisa Baird — Fri, 12 Apr 2013 10:22:26 -0500

This post was written by Jennifer Pike and Brad Rostolsky.

The Centers for Medicare & Medicaid Services (CMS) and the Office of Inspector General (OIG) of the Department of Health and Human Services (HHS) have each proposed new rules to extend existing protections that allow hospitals to donate electronic health record (EHR) technology to physicians who refer patients to their facilities. By way of background, in 2006, CMS established an exception to the Stark self-referral law to allow hospitals to donate EHR technology to physicians under certain circumstances. Likewise, in 2006, the OIG established a safe-harbor to protect such EHR donations from enforcement under the federal anti-kickback statute. While both protections are set to expire on December 31, 2013, the proposed rules would extend the provisions until the end of 2016 as a means to facilitate the adoption of EHR technology.

In addition to extending the EHR donation protections, the proposed rules would (1) remove the requirement from the original rule that donated EHR technology contain electronic prescribing capability, and (2) update the provision under which EHR technology is deemed interoperable, which would expand the types of EHR systems that qualify for the protections.

CMS’s proposed rule is available here. The OIG’s proposed rule is available here. Comments regarding both proposed rules should be submitted in writing, or electronically at www.regulations.gov, by June 10, 2013.

Part B Inpatient Billing in Hospitals

Lisa Baird — Mon, 08 Apr 2013 15:11:58 -0500

This post was written by Daniel A. Cody, Rachel M. Golick and Susan A. Edwards.

On March 13, 2013, the Centers for Medicare & Medicaid Services (CMS) concurrently issued CMS Ruling Number CMS-1455-R (the Administrator’s Ruling) and a proposed rule, “Part B Inpatient Billing in Hospitals” (the Proposed Rule). The Administrator’s Ruling and Proposed Rule address the submission of Medicare Part B inpatient claims where a Medicare Part A claim for a hospital inpatient admission is denied by a Medicare review contractor on the grounds that the inpatient admission was not “reasonable and necessary.” The Proposed Rule also would apply to situations where a hospital determined, through a self-audit, that an inpatient admission was not “reasonable and necessary.” The Administrator’s Ruling, effective as of the issuance date, establishes an interim policy to handle payment for Medicare Part B inpatient claims until CMS finalizes the Proposed Rule. The Proposed Rule would set forth a permanent regulatory scheme to permit hospitals to rebill Medicare for a wider range of Part B services than is currently permitted following denial of a Part A claim.

The impact and utility of the Proposed Rule is substantially diminished by the timeframe in which providers are allowed to resubmit Part B claims – one year after the date of service. In many cases, providers do not receive denials of Part A claims within one year of the date of service. Consequently, the one year deadline would restrict some providers wanting to resubmit Part B claims from taking advantage of the more permissive Part B resubmission framework contemplated by the Proposed Rule. In addition, pursuant to the Proposed Rule, hospitals would be able to either: (1) appeal the denied Part A claim; or (2) resubmit Part B claims. Because a hospital’s resubmission of Part B claims would bar a Part A appeal, the Proposed Rule may deter hospitals, eager for a successful Part A appeal, from resubmitting Part B claims.

Reed Smith’s Client Memo provides background and analysis of the Administrator’s Ruling and the Proposed Rule as well as a summary of potential implications for hospitals.

Click here to read the full alert.

France: Code of Conduct Compliance Breach Not Automatically a Sufficient Reason for Employee Termination - Employers Should be Cautious of Proper Local Implementation of Compliance Guidelines

Lisa Baird — Tue, 02 Apr 2013 14:40:39 -0500

Reed Smith's Global Regulatory Enforcement blog features a post on a December 2012 French Supreme Court ruling in a case involving a French Director in a health care company who had been dismissed on the grounds of a clear breach of health care compliance obligations as set forth in the French Public Health Code. The outcome: even though a company is acting in a highly regulated environment such as health care, compliance breaches must be integrated in the employer-employee relationship if they are to justify termination in France. As Reed Smith Partner Daniel Kadar notes, this case serves as a reminder to any international health care organization that the worldwide adoption of compliance guidelines and of a Code of Conduct is not in itself a sufficient protection against compliance breaches – everything depends on how these tools are implemented locally.

OIG Views PODs As "Inherently Suspect" Under the Anti-Kickback Statute

Lisa Baird — Tue, 26 Mar 2013 18:27:59 -0500

This post was written by Elizabeth B. Carder-Thompson, Catherine A. Hurley, Joseph W. Metro and Elizabeth Doyle O'Brien.

Referencing what it deems a “proliferation” of physician-owned distributors (PODs), on March 26, 2013, the Department of Health and Human Services (HHS) Office of Inspector General (OIG) released a Special Fraud Alert identifying significant concerns with such entities under federal anti-kickback principles.¹ For purposes of the Alert, the OIG defines a POD as “any physician-owned entity that derives revenue from selling, or arranging for the sale of, implantable medical devices,” including “physician-owned entities that purport to design or manufacture, typically under contractual arrangements, their own medical devices or instrumentation.” Specifically, the OIG describes in somewhat unusual detail the multiple “attributes and practices” of PODs that the OIG believes “produce substantial fraud and abuse risk and pose dangers to patient safety.”

Notably, the Alert is focused on PODs that derive revenue from selling, or arranging for the sale of, implantable medical devices that are ordered by physician-owners for use in procedures that physician-owners “perform on their own patients at hospitals or ambulatory surgical centers (ASCs).” However, the OIG states that “the same principles would apply when evaluating arrangements involving other types of physician-owned entities.”

Brief Background

The legitimacy of PODs has been subject to question for a number of years by both Congress and the OIG. In June of 2011, a Finance Committee Minority analysis released by Sen. Orrin Hatch examined the growth of PODs, primarily in the orthopedic implant (spine and total joint) sector of the device industry. The Finance report concluded that "[t]he very nature of PODs seem to create financial incentives for physician investors to use those devices that give them the greatest financial return and that, in the process, patient treatment decisions may be based on personal financial gain. This is especially troubling given numerous concerned allegations provided to the Committee that, due to their financial interest, physician investors in PODs may perform more procedures than are medically necessary or may use implants of inferior quality or that are not best suited for the procedure." For background on the Congressional activity, see our earlier update.

The OIG’s Work Plan for 2012 included an entry on PODs, as follows:

We will determine the extent to which physician-owned distributors (POD) provide spinal implants purchased by hospitals. We will also analyze Medicare claims data to determine whether PODs we identify in our review are associated with high use of spinal implants. PODs are business arrangements involving physician ownership of medical device companies and distributorships. PODs are focused primarily in the surgical arena and are currently primarily involve orthopedic implants such as spine and total joints. However, PODs appear to be quickly growing into other areas such as cardiac implants. Congress has expressed concern that PODs could create conflicts of interest and safety concerns for patients. (OEI; 01-11-00660)

Although the OIG report was expected in FY 2012, it has not yet been issued. Evidently, the OIG’s ongoing analysis has been such that it concluded a Fraud Alert was the most advisable next step.

Terms of POD Fraud Alert

The OIG summarizes the attributes and practices of PODs about which it has significant concerns as follows:

Selecting investors because they are in a position to generate substantial business for the entity;
Requiring investors who cease practicing in the service area to divest their ownership interest; and
Distributing extraordinary returns on investment compared to the level of financial risk involved.

The OIG states that such “questionable features” present four “major concerns” that are typical of kickbacks: (1) corruption of medical judgment; (2) overutilization; (3) increased costs to federal health care programs and beneficiaries; and (4) unfair competition. The OIG goes on to provide a more detailed series of POD characteristics that elevate the level of fraud and abuse risk in the OIG’s view (reprinted at end). The OIG adds that a POD “exclusively” serving its physician-owners’ patient base poses a higher risk of fraud and abuse than “a POD that sells to hospitals and ASCs on the basis of referrals from nonowner physicians.”

The OIG dismisses the notion that “disclosure to a patient of the physician’s financial interest in a POD is sufficient” to address its concerns, maintaining that “PODs are inherently suspect under the anti-kickback statute,” and cautions that the Alert should not be viewed as a road map for structuring acceptable POD entities. That said, the OIG acknowledges that the lawfulness of a particular POD under the anti-kickback statute is a fact-specific analysis and depends on the parties’ intent, and that certain safeguards and characteristics might support the defensibility of a POD. The OIG also concedes that the “anti-kickback statute is not a prohibition on the generation of profits.”²

The OIG specifically discusses in the Alert how PODs generating “disproportionately high rates of return for physician-owners may trigger heightened scrutiny.” Moreover, if “physician-owners are few in number” or “alter their medical practice after or shortly before investing in the POD,” in terms of the number of surgeries performed or the type of device the physician uses (for example, sudden exclusive use of the POD device), the OIG is particularly likely to view the POD as problematic under the anti-kickback statute. It believes such facts tend to show that referral volume bears directly on financial returns to the physician-owners.

Regarding PODs that “purport to design or manufacture their own devices,” the OIG states that the “risk of fraud and abuse is particularly high” where the physician-owners of the POD “are the sole (or nearly the sole) users of the devices” and that “claims—particularly unsubstantiated claims—by physician-owners regarding the superiority of [their] devices . . . do not disprove unlawful intent.”

Significantly, the Alert emphasizes that potential liability under the anti-kickback statute can extend to any ASC or hospital that purchases devices from a POD in order to “maintain or secure referrals from the POD’s physician-owners.” Thus, the third POD risk characteristic cited by the OIG in this regard looks at whether the physician owners (i) have stated or implied they will perform surgeries or refer patients elsewhere if the hospital or ASC does not purchase devices from the POD, (ii) have promised or implied they will move surgeries to the hospital or ASC if it does purchase devices from the POD, or (iii) have required the hospital or ASC to enter into an exclusive purchase arrangement with the POD.

Based on past experience, publication by the OIG of a Special Fraud Alert signals that increased investigative and enforcement activity is likely to follow. Given this, parties to existing POD arrangements—PODs themselves, device manufacturers, as well as hospitals and ASCs with POD purchasing arrangements—should work with their health care regulatory counsel to assess or reassess risk under the anti-kickback statute in light of the OIG’s detailed commentary.

POD Characteristics That Elevate Risk Per The OIG Fraud Alert:

The size of the investment offered to each physician varies with the expected or actual volume or value of devices used by the physician.
Distributions are not made in proportion to ownership interest, or physician-owners pay different prices for their ownership interests, because of the expected or actual volume or value of devices used by the physicians.
Physician-owners condition their referrals to hospitals or ASCs on their purchase of the POD’s devices through coercion or promises, for example, by stating or implying they will perform surgeries or refer patients elsewhere if a hospital or an ASC does not purchase devices from the POD, by promising or implying they will move surgeries to the hospital or ASC if it purchases devices from the POD, or by requiring a hospital or an ASC to enter into an exclusive purchase arrangement with the POD.
Physician-owners are required, pressured, or actively encouraged to refer, recommend, or arrange for the purchase of the devices sold by the POD or, conversely, are threatened with, or experience, negative repercussions (e.g., decreased distributions, required divestiture) for failing to use the POD’s devices for their patients.
The POD retains the right to repurchase a physician-owner’s interest for the physician’s failure or inability (through relocation, retirement, or otherwise) to refer, recommend, or arrange for the purchase of the POD’s devices.
The POD is a shell entity that does not conduct appropriate product evaluations, maintain or manage sufficient inventory in its own facility, or employ or otherwise contract with personnel necessary for operations.
The POD does not maintain continuous oversight of all distribution functions.
When a hospital or an ASC requires physicians to disclose conflicts of interest, the POD’s physician-owners either fail to inform the hospital or ASC.

__________________________________________

¹ See OIG, “Special Fraud Alert: Physician-Owned Entities” (Mar. 26, 2013).

² The OIG perhaps is referencing a notable statement in a recent fraud and abuse opinion by the Sixth Circuit Court of Appeals, finding in favor of an entity under investigation, to the effect that: “Why a business ought to be punished solely for seeking to maximize profits escapes us.” U.S. ex rel. Williams v. Renal Care Group Inc., 2012 WL 4748104 (6th Cir. 10/5/12).

Seeing the Light With the Physician Payment Sunshine Act

Lisa Baird — Wed, 20 Mar 2013 15:07:53 -0500

This post was written by Karl A. Thallner Jr. and Katie C. Pawlitz.

On February 1, 2013, the Centers for Medicare & Medicaid Services released the long-awaited final rule implementing the physician payment transparency provisions, commonly referred to as the Physician Payment Sunshine Act, in the Obama administration's 2010 health care reform legislation. The Sunshine Act joins the list of significant federal laws addressing potential conflicts of interest in health care, including the Anti-Kickback Statute and the Stark Law. With implementation of the Sunshine Act now in sight, stakeholders face the real challenge of complying with, and practicing under the shadow of, the Sunshine Act and its complex and detailed regulations.

To read the full article "Seeing the Light With the Physician Payment Sunshine Act," please visit law.com.

China Life Sciences and Health Industry Client Briefing - February 2013 (March 11, 2013)

Lisa Baird — Mon, 11 Mar 2013 15:13:33 -0500

This post was written by Jay J. Yan, John J. Tan, Mao Rong, Katherine Yang, Amy Yin, Vicki Lung, May Wong and Gordon B. Schatz.

Some important developments during February include:

New Drug GSP Issued: Supervision on Drug Distribution to be Enhanced
China to Encourage Innovative Drug Development
Baidu, SFDA, Team Up on Drug Search
TCM Manufacturer Urged to Raise Awareness of Drug Side Effects
Favorable Policies Support Biopharmaceutical Stocks
Medical Firms See Healthy Foreign Trade Growth
China's Medical Device Market to Grow Rapidly
Implementing Programs for Serious Illness Health Insurance Issued in Several Provinces
China Forbids Linking Doctors’ Incomes with Patient Medical Expenses
Provinces Urged to Buy Insurance

To read the full briefing by Reed Smith China team members, click here.

New Jersey Appropriations Committee Approves Off-Label Drug Coverage Legislation

Lisa Baird — Mon, 11 Mar 2013 10:22:13 -0500

This post was written by Jennifer Pike.

On March 7, 2013, the New Jersey Assembly Appropriations Committee approved legislation related to off-label drug coverage. Assembly bill A1830 would require health benefits plans offered to individuals and small employers, the State Health Benefits Program (SHBP) and the School Employees’ Health Benefits Program (SEHBP), to provide coverage for certain off-label uses for drugs that are approved by the U.S. Food and Drug Administration. The health plans would be required to provide coverage for off-label use of a drug if the drug is recognized as being medically appropriate for the specific treatment for which is has been prescribed in one of two established reference compendia (the American Hospital Formulary Service Drug Information or the U.S. Pharmacopeia Drug Information), or if the drug is recommended by a clinical study or review article in a major peer-reviewed professional journal. According to bill sponsor Herb Conaway M.D., "the purpose of [the] bill is to extend the medical benefits that may derive from the use of off-label drugs to individuals who may not be able to access these medications. In particular those individuals who are suffering from a terminal or chronically debilitating illness, because their insurance carriers won’t cover these drugs.” The full text and status of the bill are available here.

Sunshine Physician Payment Final Rule Overview and Analysis

Lisa Baird — Tue, 05 Mar 2013 14:53:05 -0500

This post was written by Elizabeth B. Carder-Thompson, Katie C. Pawlitz and Nancy E. Bonifant.

On February 1, 2013, the Centers for Medicare & Medicaid Services (CMS) of the Department of Health and Human Services (HHS) released the long-awaited Final Rule to implement the “Sunshine” provisions of the Affordable Care Act of 2010 (ACA). The Sunshine provisions - intended to provide increased transparency on the scope and nature of financial and other relationships among manufacturers, physicians, and teaching hospitals - require that certain manufacturers of drugs, devices, biologicals, and medical supplies covered by Medicare, Medicaid and CHIP report annually to HHS identified payments or transfers of value they have made to physicians and teaching hospitals. In addition, they require manufacturers and certain group purchasing organizations (GPOs) to report to HHS information on physician ownership and investment interests.

The Final Rule provides needed clarity on some troubling aspects of the proposal, however, it leaves a number of questions unanswered. Please click here to read our detailed analysis of the Sunshine provisions, including an overview and summary of the Rule as well as discussion of the important issues that stakeholders should be considering as they prepare for Sunshine implementation.

Medicare and Sequestration

Lisa Baird — Mon, 04 Mar 2013 13:41:22 -0500

Continuing budget gridlock in Washington has triggered sequestration and automatic budget cuts to a wide range of federal programs have gone into effect, including Medicare payments to providers and health plans. Reed Smith's Health Industry Washington Watch blog post answers some basic questions about sequestration, including what Medicare spending is impacted, when the Medicare cuts start, and how long sequestration will last.

OCR Announces Expansion of its Health Information Privacy Enforcement Team

Lisa Baird — Thu, 28 Feb 2013 12:54:12 -0500

This post was written by Brad M. Rostolsky and Jennifer Pike.

On February 27, 2013, the HHS Office for Civil Rights (“OCR”) announced the availability of several Health Information Privacy Specialist positions. This expansion of OCR’s health information privacy enforcement team signals that OCR’s increased enforcement activity during 2012 will continue in 2013. In 2012, OCR announced several enforcement actions resulting from a breach self-report required by HITECH’s Breach Notification Rule, including the $1.7 million settlement in June with the Alaska Department of Health and Social Services and the Massachusetts Eye and Ear Infirmary’s $1.5 million settlement in September. OCR’s 2012 enforcement actions, and OCR leadership comments subsequent to the release of the HITECH Final Rule, suggest that the agency’s focus will be on Security Rule compliance (specifically with regard to the whether a regulated entity has conducted a Security Rule Risk Assessment), the lack of overall HIPAA compliance that may lead to a breach (as opposed to the breach itself), and issues involving marketing or the sale of Protected Health Information. Covered entities and business associates should expect OCR enforcement, including audits, to continue to increase over the next year.

More information on these positions is available at usajobs.gov.

Additional information about OCR’s enforcement activities can be found at hhs.gov.

China's MOH Issues New Trial Regulations on Centralized Procurement of High-Value Consumable Medical Supplies

Lisa Baird — Fri, 22 Feb 2013 13:02:31 -0500

This post was written by John Tan, Christine Liu and Gordon Schatz.

On December 17, 2012, Trial Regulations on Centralized Procurement of High-Value Consumable Medical Supplies were issued by China’s Ministry of Health (MOH) and five other government agencies. Immediately taking effect upon issuance, these regulations implemented procedures for the centralized purchasing of medical devices ranging from cardiac catheters to dental fillings to intracranial implants. These regulations represent the latest step in China's continuing efforts to improve the process of how medical products are bid for and purchased.

Please click here to read the issued Client Alert.

New Development Regarding MSP Private Enforcement Provision

Lisa Baird — Thu, 21 Feb 2013 16:40:20 -0500

This post was written by Eric Buhr, Catherine Hurley and Michael Mandell.

A recent case out of a district court in Michigan suggests medical providers may have a new method to obtain payment for bills that were denied by an insurance company – Medicare Secondary Payer Act’s (MSP) private enforcement provision. Mich. Spine & Brain Surgeons, PLLC v. State Farm Mut. Auto. Ins. Co., No. 12cv11329, 2013 U.S. Dist. LEXIS 17721, *1 (E.D. Mich. Feb. 11, 2013).

In Michigan Spine, an insured covered by Medicare and State Farm automobile insurance was involved in a severe car accident. Id. at *2. Following the accident, the insured underwent extensive neurosurgery performed by Michigan Spine and Brain Surgeons, PLLC ("Michigan Spine"). Id. at *5. Michigan Spine submitted its charges to State Farm, but Sate Farm refused to cover the individual claiming that her injuries were from preexisting conditions and unrelated to the car accident. Id. at *5-*6. The insured then submitted her claim to Medicare which made a partial payment to Michigan Spine. Id. at *6.

Michigan Spine then sued State Farm under the MSPA’s private enforcement provision, 42 U.S.C. Section 1395y(b)(3)(A), which allows private actions, on Medicare’s behalf, for reimbursement from primary payers who wrongfully denied coverage. Id. at *6-*7. State Farm argued that Michigan Spine had no standing to sue under the provision because the claim had not yet "materialized" – i.e. no court had determined State Farm was liable for the insured’s medical treatment. Id. at *10.

The district court found otherwise. The court, reiterating a previously determined ruling by the Sixth Circuit, held that the showing of "materialization" or "demonstrated responsibility" only applies to a "lawsuit brought by Medicare for reimbursement for medical expenses caused by tortfeasors." Id. at *15 (quoting Bio-Medical Applications of Tenn., Inc. v. Cent. States Southeast & Southwest Areas Health & Welfare Fund, 656 F.3d 277, 279 (6th Cir. 2011)). In contrast, "a healthcare provider need not previously demonstrate a private insurer’s responsibility to pay before bringing a lawsuit under the Act’s private cause of action." Id. at *15 (quoting Bio-Medical, 656 F.3d at 279)). Thus, the district court denied State Farm’s motion to dismiss.

While Michigan Spine may relax the requirements for MSP private causes of action against primary insurance providers, the holding does not apply in the context of medical device and drug manufactures (even if self-insured); rather, that avenue remains restricted to a showing of "demonstrated responsibility."