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Since 2014, over one-third of states have enacted legislation, commonly known as “Right to Try” laws, in an effort to increase access to drugs which have yet to be approved by the Food and Drug Administration, for use by the terminally ill who have exhausted their treatment options.  Under the traditional FDA regulatory scheme, drugs are subject to pre-market testing, and clinical trials were normally the only way patients could obtain access to drugs before FDA approval.  Given the lengthy FDA timelines for approving drugs and the significant difficulty patients had in obtaining drugs prior to approval, more than a dozen states have enacted their own, state-level legislation, in an attempt to expand access to drugs which have yet to received their  FDA approval.

The so-called “Right to Try” legislation enacted by 18 states share several important provisions. Generally, eligibility under these statutes require that the patient a) have a diagnosed terminal illness, b) have considered all existing treatment options approved by the FDA, yet determined that the risk from the unapproved drug is not greater than the risk from the disease, c) obtain a prescription from his/her physician, and d) provide informed consent.  Additionally, the statutes permit, but do not mandate, that drug manufacturers make the unapproved drugs available, and allow, but do not mandate, health insurers to cover the same.  Further, the statutes significantly limit the civil liability, or medical board disciplinary action, of a physician, based solely on his/her prescription of the unapproved drug.

Notwithstanding individual states’ enactment of Right to Try legislation, their effects remain uncertain, as neither manufacturers nor insurers are required to provide or insure, respectively, products which have not received FDA approval.  More importantly, federal statutes and regulations limiting the use of unapproved drugs are still likely to preempt states Right to Try laws, raising issues of liability under federal law for both manufacturers and providers.

To date, neither Pennsylvania nor New Jersey have enacted Right to Try laws, however, such laws are pending in both legislatures.[1]  In light of the rapid passage in many states, and introduction of bills in almost all states, of Right to Try laws, and the dearth of precedent for such expansive state legislation, drug manufacturers who make non FDA-approved drugs available to patients, and the physicians who prescribe these drugs under Right to Try laws must remain cautious as it remains yet to be seen how Right to Try laws will affect manufacturers’ and providers’ federal and state liability.

[1] An Act providing for the use of investigational drugs, biological products and devices by terminally ill patients, Pennsylvania House Bill 1104, available at http://www.legis.state.pa.us/cfdocs/billInfo/BillInfo.cfm?syear=2015&sind=0&body=H&type=B&bn=1104 (Introduced and referred to Health committee as of May 2015); “Right to Try Act” permitting terminally ill patients to access investigational drugs and treatment. Health, Human Services and Senior Citizens, New Jersey S.2186 / A.3474, available at http://www.njleg.state.nj.us/2014/Bills/A3500/3474_I1.PDF (referred to Assembly/Senate Health and Senior Services Committees as of June 2014).

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In a June 9, 2015 Fraud Alert issued by the Office of Inspector General of the United States Department of Health and Human Services (the “OIG”) entitled “Physician Compensation Arrangements May Result in Significant Liability” the OIG reiterated its longstanding position that physicians who enter into “compensation arrangements . . . must ensure that those arrangements reflect fair market value for bona fide services the physicians actually provide.” (emphasis added).

The Fraud Alert makes it clear that the Department of Justice and OIG continue to focus not only on the large healthcare institutions, but that federal investigators are scrutinizing individual physicians’ compensation arrangements.  The Fraud Alert follows twelve recent settlements between the OIG and physicians, involving medical director and office staff arrangements, in which the OIG alleged that compensation paid to the physician under the medical directorship arrangements constituted improper remuneration under the anti-kickback statute for a number of reasons, including:

1. The compensation took into account the physicians’ volume or value of referrals;
2. The compensation did not reflect fair market value for the services performed;
3. The physicians did not actually provide the contracted services; and
4. An affiliated health care entity paid the salaries of the physicians’ front office staff thereby relieving the physicians of a financial burden they otherwise would have incurred.

With regard to the twelve settlements, the OIG determined that the physicians involved were an integral part of the scheme and subject to liability under the Civil Monetary Penalties Law.

The OIG noted that although many compensation arrangements are legitimate, a compensation arrangement may violate the anti-kickback statute if even one purpose of the arrangement is to compensate a physician for his or her past or future referrals of Federal health care program business.

Again, and importantly, the intended audience of the Fraud Alert are individual physicians and small practice groups[1] which the OIG encourages “to carefully consider the terms and conditions of medical directorships and other compensation arrangements before entering into them.”

Ultimately, the June 9th Fraud Alert emphasizes the need for healthcare institutions to continually ensure that their physician compensation arrangements reflect the fair market value for bona fide services that the physicians actually provide and that the vigilance required of larger healthcare institutions likewise applies to small practices and individual physicians.

[1] The OIG likewise provides links to guides it publishes entitled “Compliance Program Guidance for Individual and Small Group Physician Practices” and “A Roadmap for New Physicians: Avoiding Medicare and Medicaid Fraud and Abuse,” further underscoring that the instant alert was intended for individual physicians and small practices.

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Late last week, the Office of the Inspector General of the United States Health and Human Services Administration (OIG) issued an auspicious advisory opinion concerning “a nonprofit, tax-exempt, charitable organization’s proposal to provide financial assistance to individuals with chronic diseases, including cancer, to assist with the costs of health insurance and drug and device therapies.”  After determining that the charity and patients would be adequately insulated from the influence of the charity’s donors, the OIG determined that said arrangement would not result in liability under the Federal anti-kickback statute.

By way of background, the requestor of the advisory opinion was a 501(c)(3) charitable entity that sought to establish a “patient assistance program to provide financial assistance to individuals with cost-sharing obligations for prescription drugs or devices, health insurance premiums, incidental expenses (e.g., travel expenses, ongoing testing), or a combination thereof, associated with the treatment of various chronic diseases.”  Patients would learn about said program through a variety of sources, which included their treating physicians, dispensing pharmacies, medical equipment distributors, patient support groups, as well as product manufacturers.  The opinion provided, however, that before applying for assistance under the program, the patient must have selected their health care provider, practitioner, or supplier, and have a treatment regimen in place and while receiving assistance, the patient would remain free to change providers, practitioners, suppliers, drug or device therapies, or insurance plans.

Funding for the assistance program would be derived from donations solicited from a variety of sources, including pharmaceutical and device companies, specialty pharmacies, distributors, individuals, and corporations and all donations would be in the form of cash or cash equivalents. Donors may earmark their contributions to funds for patients suffering from a specific disease, but the donations would otherwise be unrestricted.

Given the potential for prohibited referrals, remuneration, and influence from donors, the OIG specifically noted several factors in which it relied in coming to its conclusion:

1) As the patient had previously selected their provider, practitioner, or supplier, the charity would not “refer patients to, recommend, or arrange for the use of any particular practitioner, provider, supplier, drug, device, or plan and that patients would have complete freedom of choice in such matters.”

2) The charity’s discretion to use the donations would be “absolute, independent, and autonomous” and “no donor, or affiliate of a donor, would exert any direct or indirect influence over the charity or charity’s patient assistance program” as a board fully independent from the donors would govern the charity.

3) The charity would not provide donors with any individual patient information (and patients would not be provided with donor information) or any data related to the identity, amount, or nature of drugs, devices, or services subsidized by the assistance program and reports to donors would not contain any information that would enable a donor to correlate the amount or frequency of its donations with the number or medical condition of patients who use its products or services or the volume of those products or services.

4) The charity “would define its disease funds in accordance with broadly defined disease states based on widely recognized clinical standards; and (ii) except to the extent that [charity] limits certain disease funds to the metastatic stage of certain cancers, its disease funds would not be defined by reference to specific symptoms, severity of symptoms, the method of administration of drugs, stages of a particular disease, type of drug or device treatment, or any other way of narrowing the definition of widely recognized disease states.”

In light of the insulation of the charity from donors, the OIG ultimately determined that the contributions donors would make to the charity would not reasonably be construed as payments to the charity to arrange for referrals.

The OIG additionally concluded that financial assistance provided by the charity to federal health care program beneficiaries presented a low abuse risk and was unlikely to influence any beneficiary’s selection of a particular provider, supplier, etc. as “eligibility determinations would be made in a consistent, uniform manner and would not be based, in whole or in part, on whether a patient’s provider, practitioner, or supplier has made contributions to [charity’s]’s patient assistance program.”

Ultimately, the OIG found that aforementioned payment assistance program, conducted by independent charities, should not raise anti-kickback concerns, even if the charities receive charitable contributions from donors whose products are supported by the subsidies provided in the program.  The instant opinion by the OIG is an important recognition of the need for, and tacit support, of the endeavors by charities as well as their corporate donors — and both charities and donors alike must be cognizant that such patient assistance programs are viable — so long as the charity and patients remain insulated from the donors.

Questions regarding this article may be sent to Publications@Capehart.com. 

This spring, the Department of Justice (DOJ) has gone on the offensive in a series of public speeches before bar associations concerning the DOJ’s emboldened and proactive approach to the investigation and prosecution of healthcare fraud against both individuals and corporations.  Given that the DOJ is ramping up its efforts to combat healthcare fraud, seeking hefty prison sentences, and actively prosecuting not only individual doctors but corporate health systems, practitioners and providers of all sizes must take the opportunity to ensure that they are in compliance with the multitude of federal fraud-related healthcare statutes, including the False Claims Act, the Stark Law, and the Anti-Kickback Statute.

In remarks given at the American Bar Association’s 25^th Annual National Institute on Health Care Fraud last month, Assistant Attorney General Leslie R. Caldwell, head of the DOJ Criminal Division, provided insight into the ever-evolving landscape of healthcare fraud prosecutions.  More specifically, Ms. Caldwell stated that the DOJ has come “a long way” since the days where prosecuting healthcare-related crimes were reactive and wherein the Centers for Medicare and Medicaid Services (CMS) maintained control of the health care billing and other data and prosecutors were forced to wait for CMS to refer cases to the DOJ.

Ms. Caldwell noted that in 2007, the Medicare Fraud Strike Force was created, placing prosecutors and federal law enforcement at the forefront of investigating and prosecuting, and striking a proactive stance against, healthcare fraud.  Ms. Caldwell suggested that the biggest precipitator of the DOJ’s move to proactively combatting healthcare fraud is that now, rather than relying on CMS data, the DOJ has near-real-time access to the data.  Such access to data allows the DOJ to bring cases more quickly, but, perhaps more importantly, allows the DOJ to identify fraud schemes as they emerge as well as to identify previously-unknown types of fraud schemes.

Nevertheless, Ms. Caldwell lamented that despite recent successes, “Medicare fraud remains a serious drain on our health care system.  In fiscal year 2014, the Justice Department recovered over $3 billion of fraudulent Medicare billings through civil, criminal and administrative actions.”

Ms. Caldwell suggested that in the past, billing Medicare for services which were not provided was the primary healthcare fraud scheme being perpetrated.  However, she describes the latest “frontiers” in fraud “in areas including Medicare Part D, laboratory services, hospital-based services and hospice care.”

More importantly, Ms. Caldwell stated that the DOJ will continue to focus on prosecuting fraud perpetrated by individual physicians, home health care providers, pharmacy owners and medical supply company executives, but emphasized the DOJ’s apparently newly-discovered interest in investigating and prosecuting fraud in “corporate boardrooms and executive suites.”  She stated that in 2014, the DOJ had only a few open corporate investigations, however, as of late last month, there are a dozen active corporate investigations and the “DOJ is steering additional prosecutorial resources to this area.”

Notwithstanding, Ms. Caldwell suggested that the DOJ, in applying the Principles of Federal Prosecution of Business Organizations (the FILIP factors) which are applied in general corporate prosecution matters, will still be applied in corporate healthcare fraud prosecutions, and in particular, that corporations may minimize the effects of a prosecution if they fully cooperate with the DOJ.  Ms. Caldwell noted, however, that simply producing documents in response to a grand jury subpoena will not result in the DOJ agreeing to credit for corporate cooperation, rather “companies seeking credit for cooperation must conduct a thorough internal investigation and turn over all available evidence of wrongdoing to our prosecutors in a timely and complete way. And that evidence must include information about the individuals who committed the crimes, no matter how high those individuals might have been on the corporate ladder.”  More generally, she stated that “[c]ooperation means that a corporation has made an affirmative effort to investigate potential wrongdoing, and that it has turned over the facts uncovered during that investigation in a timely way to our prosecutors.”

Ultimately, healthcare providers of all sizes must be aware that given the DOJ’s, and its federal law enforcement partners’, real-time access to CMS data, and apparent mandate from the White House, federal prosecutors are stepping up the investigation and prosecution of healthcare fraud.  As made clear in Ms. Caldwell’s speech, executives and the corporations they manage are subject to the DOJ’s anti-fraud push, and are presently a prime target for the DOJ.  While the DOJ has indicated that cooperation may serve to minimize certain penalties against a corporation, the DOJ has made clear that cooperation involves thoroughly assisting the DOJ’s prosecution as well as ensuring that all wrongdoers are held accountable – not only those low on the corporate ladder.  Again, given the DOJ’s public pronouncements of its intent to proactively investigate and prosecute all manners of healthcare fraud, all healthcare providers must review and ensure their compliance with applicable federal healthcare statutes.

Questions regarding this article may be sent to Publications@Capehart.com. 

Peer review is the essential process by which physicians critique the medical services provided by their colleagues for the purposes of decreasing occurrences of medical malpractice and increasing the quality of health care, while simultaneously serving as a primary method of evaluating the quality of patient care. Currently, almost all states have enacted peer review privilege statutes to protect the work of medical peer review committees, however, recent cases at the state and federal levels have chipped away at the once-impenetrable privilege that peer review committees had from disclosure during medical malpractice litigation.

Earlier this month, the U.S. District Court in the Southern District of Illinois, in Hall v. Flannery, No. 3:13-cv-914-SMY-DGW (S.D. Ill. May 1, 2015) held that the state’s peer review privilege did not protect from disclosure the so-called “audit trail” of who viewed a patient’s electronic medical record (EMR) and when same was viewed.

The plaintiff in a medical malpractice lawsuit sought the audit trail and metadata associated with the patient’s medical record in discovery to support a legal theory that the patient’s medical records were improperly altered by the defendant hospital. The audit trail and metadata included the date, time, the name of the person who accessed the record, their user ID, and the items that they viewed.

The defendants vociferously contended the peer review privilege protected this information from disclosure. The defendants argued that the audit trail would reveal the names of the individuals, including peer review committee members, who viewed the medical record, and what items in the chart peer review committee members viewed.

The court disagreed with the defendants and explained that the privilege “protects the discussions, comments, and conclusions made during the peer review process, in order to facilitate frank discussion without the fear of legal or professional reprisal in an effort to improve patient outcome, but would not protect subsequent decisions or recommendations that would result from the peer review discussions or information generated prior to the peer review process.” (emphasis added).

More specifically, the court noted that as the medical record itself was discoverable and as the audit trail and metadata were incorporated in those records, the audit trail and metadata were consequently not subject to the peer review privilege.  Moreover, the court found the peer review committee did not generate the data at issue to further its evaluation of the patient’s medical care, but that rather, the audit trail was created “in the ordinary course of a hospital’s medical business . . . [and] is not privileged even if later used by a committee in the peer-review process.”

Ultimately, the court’s recent decision is yet another blow to the peer review privilege, and is consistent with the nationwide trend to limit the privilege.  However, given the court’s sweeping limitation of the privilege to only “discussions, comments, and conclusions made during the peer review process,” hospitals and providers must be ever cognizant that data created prior to and subsequent to the peer review are not necessary protected from disclosure and that presumably all metadata automatically created by the hospital’s computer system, with respect to a patient’s medical record, are discoverable.

Questions regarding this article may be sent to Publications@Capehart.com. 

The Centers for Medicare and Medicaid (CMS) recently announced the next ACO (Accountable Care Organization) venture in the release of its proposed “Next Generation ACO” initiative. It claims this initiative will create better opportunities for coordinated patient care and set higher standards for quality and safety. The Affordable Care Act has encouraged the formation of ACO entities through programs such as the Medicare Shared Savings Program, which launched in 2012 under the Affordable Care Act that ties quality targets with financial incentives, in an effort to focus on patient-centered care, quality improvement, and keeping a patient’s treatment closely linked. These targets, in turn, help facilitate the spread of information among providers and help better monitor chronic disease. This proposed “next generation” initiative builds off of the Pioneer ACO model, which was designed for organizations already following a care model comparable to an ACO in terms of financial risk and care coordination, but not yet officially labeled an “ACO.” Essentially, the Pioneer model was advertised as a “higher risk, higher reward” model that held potential for savings above and beyond what was possible via the Medicare Shared Savings Program. So how did the Pioneer ACO Model fare? The reviews are mixed.

As of September 2014, 19 of the original 32 enrolled participants remained in the program. After the first year of the program, the financial outcomes ranged from a gross loss of $9.31 million to a gross savings of $23.34 million. Thirteen organizations qualified for shared savings, one owed losses, and 18 did not save or lose. By the end of year two, 20 participant ACOs remained with a similar range of loss to savings. Despite the range of results, CMS clearly remains committed to this program and is taking things a step further in the creation of the Next Generation ACO project. According to CMS, this new model builds upon the experience from the Pioneer model and further increases the risk/reward schematic above and beyond what was offered in the Pioneer mode. Ultimately, the hope is that entities will be induced by the strong financial incentives offered with the continued end goal of increased efficiency, improved patient care quality, and better overall care management. CMS anticipates that anywhere from 15 to 20 entities will sign up for the new initiative. CMS is offering a wide variety of helpful tools to the entities that ultimately enroll in the program to assist in effective patient care management and coordination, including expanded coverage for telehealth, home services, and skilled nursing.

If the Pioneer model taught us anything, it seems as though some ACOs are better equipped to take on the increased risk than others. Despite the mixed results, CMS seems to believe that the ACO model is the key to controlling health care costs while maintaining high-quality metrics in the future. Hypothetically speaking, this may very well be the case, but the question is whether, in reality, this type of risk/reward model is feasible nationwide.

Questions regarding this article may be sent to Publications@Capehart.com. 

As part of the recent tidal wave of physician practice groups being swallowed up by ever-growing hospital systems, the Federal Trade Commission (the “FTC”) has taken an increasingly aggressive position that certain acquisitions threaten trade, are anti-competitive, and must be divested.  Most recently, last month, the influential federal Ninth Circuit Court of Appeals issued an alarming decision largely upholding the FTC’s position.  In light of the FTC’s newly aggressive stance, and supporting federal appeals court decision, providers must actively assess the viability of their mergers and acquisitions through the lens of whether such a merger or acquisition stifles competition, is anti-competitive, or whether it negatively effects healthcare consumers. [1]

Litigation began in 2012 when the Saint Alphonsus Medical Center, a rival health system of the St. Luke’s Health System, both of which operate hospitals and employ physicians in the suburbs of Boise, Idaho, filed a lawsuit to challenge the proposed acquisition by St. Luke’s of the 41-physician Saltzer Medical Group.

Soon after filing the lawsuit, St. Luke’s completed the acquisition — however, the completion of the acquisition was not ultimately a barrier to Saint Alphonsus proceeding with its lawsuit.  The FTC joined entered the mix as a co-plaintiff in early 2013.

In 2014, following a bench trial, the trial-level district court found that the acquisition violated Section 7 of the Clayton Act, 15 U.S.C.A. § 12 et seq., determining that such an acquisition threatened to reduce competition in the adult primary care physician services market in the town of Nampa, Idaho, a suburb of Boise.

Of note, for the first time, the FTC litigated, through trial, a challenge to a physician group acquisition by a health system, suggesting a shift in policy for the Obama administration and an FTC that is looking more closely at the effects on health-care consumers of the wave of hospital-physician group mergers and acquisitions.

The Ninth Circuit determined that its analysis would be limited to the geographic market to Nampa, rather than a much broader market argued by St. Luke’s. In Nampa, the market share of the merging parties were high, together Salzter and St. Luke’s accounted for almost 80% of the Nampa primary care physician market.

A commonly used metric for determining market share is the Herfindahl-Hirschman Index (the “HHI”). The analysis considers both the post-merger level of the HHI and the increase in the HHI resulting from the merger.  The merger guidelines, utilized by regulatory agencies in reviewing the competitive/anti-competitive results of mergers and acquisitions, classify markets as (1) unconcentrated (HHI below 1500); (2) moderately concentrated (HHI between 1500 and 2500); or (3) highly concentrated (HHI above 2500).  Sufficiently large HHI figures establish the FTC’s prima facie case that a merger is anti-competitive. The district court calculated the post-merger HHI in the Nampa primary care physician market as 6,219, and the increase as 1,607.

Though the market shares were high, the number of physicians involved was surprisingly small as Saltzer employed sixteen primary care physicians in Nampa, St. Luke’s employed eight, and rival Saint Alphonsus employed only nine, again suggesting that the FTC is taking a more aggressive approach with regard to mergers and acquisitions, even when the total number of physicians involved was only thirty three.

Notably, the Ninth Circuit rejected the idea that an anti-competitive merger could be justified because a merger will produce efficiencies. The Ninth Circuit even accepted the lower court’s finding that the acquisition would improve health care in the area but said, given a very anti-competitive acquisition, efficiencies alone were insufficient so save an otherwise illegal acquisition.

Of perhaps the most importance, the Ninth Circuit rejected the argument that if a merger is anti-competitive, a remedy less than divestiture is sufficient to protect competition — rather, the Ninth Circuit found divestiture is simple to administer is the preferred remedy for anti-competitive mergers between hospitals and physician groups.

Again, as hospitals are in the process of actively acquiring and merging with physician groups, the FTC has equally become active in scrutinizing, and litigating through trial, mergers and acquisitions which it believes threaten trade and are anti-competitive, even when the number of physicians who are part of the transaction are low.  With the Ninth Circuit’s decision largely upholding the FTC’s position, providers need to continually examine how any proposed merger or acquisition effects trade, competition, and ultimately the healthcare consumer.

[1] See St. Alphonsus Med. Ctr. – Nampa, Inc. v. St. Luke’s Health Sys., 2015 U.S. App. LEXIS 2098 (9th Cir. Idaho Feb. 10, 2015), affirming, St. Alphonsus Med. Ctr.-Nampa, Inc. v. St. Luke’s Health Sys., 2014 U.S. Dist. LEXIS 9264 (D. Idaho Jan. 24, 2014).

Questions regarding this article may be sent to Publications@Capehart.com.