Source: https://www.manatt.com/Insights/Newsletters/Health-Update/Megatrends-Reinventing-How-Patients-Think?utm_source=healthupdatenewsletter&utm_medium=email&utm_campaign=healthupdate_12.18.17
Timestamp: 2019-04-18 14:43:55+00:00

Document:
Editor’s Note: In a recent webinar for PharmaVOICE, Manatt Health revealed the megatrends reinventing the life sciences industry—and how they relate to new thinking by patients, providers and payers. In a new three-part series summarizing the program, we will examine each trend’s trajectory—and how shifts in the patient, provider and payer landscapes will affect life sciences companies, reinventing their business models and relationships. Part 1, below, focuses on the megatrends for patients. In January, we will explore the megatrends for providers, and in February, we will focus on the payer segment.
To view the full webinar free on demand, click here. To download a free copy of the webinar presentation, click here.
In early 2017, California Assembly member Jim Wood introduced Bill AB-265, banning the use of copay coupons in California when a generic equivalent drug covered by an individual’s health plan exists. Governor Jerry Brown signed the bill into law on October 9, 2017.
There are some exceptions to the law, including HIV and AIDS maintenance drugs and drugs for patients who have completed required step therapy or met other prior authorization requirements. In addition, the bill does leave some things unchanged. Manufacturers are still able to offer products free of charge to patients and/or insurers. Pharmacists can continue to substitute drugs, and patients can still obtain assistance through independent charities. After the governor signed the bill, however, the Pharmaceutical Research Manufacturers Association (PhRMA) issued a statement warning that the law doesn’t ensure patients who need branded products over generics will be able to access those treatments.
New legislation is not the only threat to patient assistance. There are also an increasing number of investigations targeting patient assistance charities that are jeopardizing patient access to medications.
For example, the Internal Revenue Service is investigating the tax-exempt status of the Good Days patient assistance charity, which was formerly known as the Chronic Disease Fund (CDF). The investigation alleges that Good Days’ copay assistance program gave “impermissible” benefits to its pharmaceutical company donors by returning money donated as payments for drugs the donors manufactured. If the claims are proven true, Good Days could lose its tax-exempt status.
In addition, the U.S. Attorney’s Office for the District of Massachusetts is conducting a separate inquiry into patient assistance groups and their relationship with the drug industry.
Some of the subpoenas call into question the relationships that enable nonprofits to provide financial assistance to patients who are government-insured and can’t access copay coupons. The threats to patient assistance are coming on all sides—manufacturer-sponsored programs, charitable foundation distributions and copay assistance through copay coupons.
Against the backdrop of copay assistance programs coming under attack, we see another interesting trend: PBMs are developing a more comprehensive menu of consumer-oriented services to serve as a hedge against cost pressures, create positive press and leverage their unique role in the supply chain. Like pharmaceutical manufacturers, PBMs are increasingly looking for ways to engage patients and reduce costs through better management. Their move to create more comprehensive direct-to-consumer platforms is a key step in that direction—and complements the relationships that PBMs have with payers, pharmaceutical companies and pharmacies.
CVS Caremark and Novo Nordisk. In this direct-to-consumer savings program for three Novo insulin products (Novolin R®, Novolin N® and Novolin 70/30®), patients forgo insurance coverage, if they have it, and pay a discounted cash amount completely out of pocket.
Optum and AARP. Under the Optum and AARP program, AARP members and their families receive discounts on medications (FDA-approved generic, brand name or specialty drugs) not covered by the patient’s current prescription plan or Medicare Part D.
We tend to think of CVS Health in terms of in-store pharmacies. CVS also, however, is a PBM through CVS/Caremark, a specialty pharmacy, and a provider through the CVS Minute Clinics. Its acquisition of Aetna could deliver increased options for patients, including providing care to Aetna enrollees more cost-effectively through the Minute Clinics. In addition, the deal could result in cost savings through more efficient formulary design, as well as greater leverage in price negotiations.
CVS also made news recently when it announced its new next-day drug delivery service (with same-day delivery in New York City). What was the reason behind the announcement?
Many believe that the driver behind the new delivery service—and the Aetna acquisition—is the potential for Amazon to enter the healthcare market, bringing its proven delivery model to prescription drugs. Amazon’s primary customer is between 30 and 45 years old—and the theory is that this demographic will need more drugs as it gets older. The way these customers shop and consume fits squarely into the Amazon model.
In fact, Amazon already is competing with in-store pharmacies on over-the-counter (OTC) medications and is often undercutting competitors on OTC prices. In addition, through its recent acquisition of Whole Foods, Amazon has the opportunity to establish in-store pharmacies with prescription fulfillment through mail order delivery—Amazon’s acknowledged sweet spot. If Amazon were to take that path, it could dramatically change the dynamic of drug fulfillment.
What can pharmaceutical companies expect as they look ahead? Pharmaceutical manufacturer-sponsored patient copayment assistance—through copay cards and charitable giving to foundations—will continue to be scrutinized and threatened. Overlaid on those threats will be state drug pricing transparency legislation (with or without copay bans) that will put greater pressure on traditional methods for helping patients. Concurrently, emerging entities will approach direct-to-patient assistance in new ways, as we are already seeing with PBMs entering the drug discount space, Amazon contemplating a move into the prescription drug market, and the CVS/Aetna deal opening up new possibilities for providing care in local settings at lower costs.
In this new environment, pharmaceutical companies will need to take a two-pronged approach to assisting patients. First, they will need to seek “safe harbors” and design pilots to continue providing traditional models of support. Second, at the same time as they are acting to protect current models, they will need to be designing innovative new approaches for engaging with patients by working through emerging partners.
Editor’s Note: The opioid epidemic represents a clear and present danger to the nation’s public health, with drug overdoses now claiming more lives each year than car crashes and gun violence combined. With no national strategy or significant funding for confronting the crisis, local leaders are stepping up to implement programs that address the prevalence and impact of untreated substance use disorders (SUDs) and serious mental illness (SMI). In a new post for the Health Affairs Blog, summarized below, Manatt Health shares insights into the local initiatives that cities and counties are establishing to alleviate the human and economic devastation of the opioid epidemic in their communities. To read the full post, click here.
The post highlights findings from a new Manatt Health report, supported by the Robert Wood Johnson Foundation, “Communities in Crisis: Local Responses to Behavioral Health Challenges.” Drawing from extensive research and interviews with local program leaders, the report provides detailed profiles of 13 local initiatives, as well as a comprehensive taxonomy categorizing program elements and features. Click here to download the report and taxonomy.
A staggering 20 million adults in the United States have an SUD, yet 88% do not receive treatment for their conditions. Local communities are experiencing the human and economic costs of the opioid epidemic firsthand, especially rural communities, where the opioid-related death rate is 45% higher than in metro areas. Untreated SUDs contribute to rising rates of incarceration, homelessness and use of emergency services.
Local agencies are adopting housing first and harm reduction programs that incorporate sustainable housing and safer or managed substance use as a means to support long-term recovery.
There are literally thousands of local programs that have been launched to address the opioid crisis. The most successful efforts share a set of common factors that together create client-centric systems of care aligning law enforcement, criminal justice, public health and community resources to coordinate, improve access to and deliver a broad spectrum of treatment, recovery, health and social services.
It takes a village—and village leadership. Public agencies need to collaborate and align with community-based health and social service providers. Strong leadership from mayors’ offices, county sheriffs, judges and others has been used to galvanize community and public support.
Access to health and social services benefits is critical. There is a profound need to ensure that people afflicted with behavioral health disorders gain access to a broad set of treatment and social support services. Local programs have incorporated supportive mechanisms to help clients obtain access to Social Security benefits, healthcare coverage (most notably Medicaid) and other benefits that can help pay for clinical services and provide a source of income and other benefits that help clients recover.
Care coordination and management demand a major effort. Accessing and coordinating the delivery of a broad spectrum of services require substantial effort. Local programs are deploying case workers and counselors to help clients navigate labyrinthine criminal justice systems and agencies; coordinate and support access to services; and work with partners in the community to provide therapeutic treatment, housing, education, employment and other social services.
Funding is scarce. Most cities and counties are hampered by limited funding for behavioral health programs. Agencies are weaving together a patchwork of funding streams, including state and local general funds, targeted assessments often coupled with contributions from local health system community benefit programs, local and national philanthropic organizations, and federal programs. These funding streams are often time-limited and subject to legislative appropriations, restricting their scale and making their future uncertain.
Most surprising is the limited use of Medicaid funding to support local programs. While many low-income adults affected by the opioid crisis are eligible for Medicaid—especially in states that have expanded their Medicaid programs—the vast majority of local programs have not fully leveraged Medicaid funding to sustain and grow their initiatives. The failure to fully leverage Medicaid funding suggests a breakdown in coordination across state, county and city agencies, and a lack of understanding about how Medicaid programs can be an invaluable resource for local efforts.
There is a significant need for thorough evaluation and widespread dissemination of successful local approaches. More evidence will allow city and county leaders with state and federal partners to make more informed decisions about investing in the programs that are having broader and longer-term impacts on the well-being of individuals and communities.
The opioid crisis continues unabated as every level of government struggles to identify, fund and organize an effective response. The challenge and opportunity is to weave together the knowledge and capabilities of local leaders with federal and state resources to mount a more comprehensive attack on the opioid epidemic.
Editor’s Note: In a recent webinar for Bloomberg BNA, Manatt examined game-changing fraud and abuse trends and cases and revealed strategies for avoiding False Claims Act (FCA) actions. In November, we kicked off our three-part series summarizing key insights from the program with an article exploring the current state of play—and the definition of what a false claim looks like in 2017. This month, we reveal the innovative and aggressive enforcement techniques making the healthcare landscape more perilous than ever before in history. Watch for the conclusion of our series in January, explaining how to build an effective compliance program, as well as providing practical recommendations for preparing for and responding to government inquiries.
In the context of enforcement, data analytics means using data collected by the Centers for Medicare & Medicaid Services (CMS) to evaluate trends and discover suspected fraudulent patterns. The use of data analytics was authorized in 2010, when Congress mandated that the Department of Health and Human Services (HHS) identify fraud using predictive modeling (Section 4241 of the Small Business Jobs Act). Since June 2011, CMS has used the Fraud Prevention System on all Medicare fee-for-service claims on a streaming, national basis, using predictive modeling and building profiles of providers, networks, billing patterns and beneficiary utilization to create risk scores and flag potential fraudulent activity. This approach generates leads that trigger administrative actions before payments are released, enabling CMS to move away from the “pay and chase” model and take action more quickly.
There are a few key takeaways from AAG Blanco’s statement. First, it highlights that the billing data from CMS is available in virtually real time. Second, it stresses that the focus is on the most aggravated cases. Third, it points out that data analytics are used in conjunction with other investigative tools, including more traditional methods.
In his statement, Levinson pointed out that the insights data analytics yield are not just being used in “hot spot” areas with high incidences of healthcare fraud (such as Miami, Tampa, Los Angeles, Detroit, Brooklyn, south Texas, southern Louisiana, Chicago and Dallas). They also are being pushed out to U.S. Attorney’s Offices and investigative agencies in jurisdictions throughout the country.
In addition, State Medicare Fraud Control Units (MFCUs) are using data analytics to strengthen their effectiveness. On August 5, 2016, HHS-OIG approved the application of the New York attorney general’s MFCU to begin using data mining. Several other states recently obtained three-year renewals, including Michigan, Missouri, Oklahoma and California. Throughout the country, we are seeing an increase in enforcement activity based on data analytics.
How do investigators and prosecutors use the information from data analytics? Prosecutors get information about high-risk providers, identified as outliers when compared with their peers at the national and state levels. The data examined includes how much a provider is billing, to whom, and for which types of procedures and services. Based on that information, investigators dig deeper, through either covert or overt methods, to look for improper relationships, collusion or illegal activity.
Data analytics will play a key role in the DOJ’s new Opioid Fraud and Abuse Detection Unit. This pilot program, involving several districts across the country, will focus on using data analytics to combat the growing opioid crisis. The program will use data to identify individuals who are outliers in the distribution of opioids. For example, it will look at physicians who are prescribing opioids at an excessive level, the average age of the patients receiving the prescriptions, and the number of patients who died within a set period of time. The program also will use data to identify pharmacies that are dispensing disproportionately high amounts of opioids. The new opioid program demonstrates how much more effective investigators and prosecutors can be with data analytics added to their toolbox.
A classic example of how data analytics can uncover fraudulent behavior is the case of Dr. Boris Sachakov, a Brooklyn proctologist. Dr. Sachakov was performing hemorrhoidectomies at a rate that caused him to be the leading biller in the nation—a fact that caught the attention of investigators. When investigators examined the data on Dr. Sachakov’s procedures, they learned that he had billed for 85 hemorrhoidectomies within 20 months—and that he was billing, in some cases, for working more than 24 hours a day. In addition, they found that his procedures were more often examinations than surgeries. The claims in his case involved $22 million, of which he received more than $9 million. With the help of data analytics, Dr. Sachakov ended up spending 30 months in jail.
As mentioned above, investigations can sometimes involve covert methods, including electronic surveillance. Just this year, electronic surveillance was used in the “Operation Avalanche” case against three New York City medical clinics and 13 individuals, including physicians, for defrauding Medicare and Medicaid by billing for medically unnecessary tests. In this case, patients were induced to submit to unneeded medical tests in exchange for oxycodone prescriptions.
“Operation Avalanche” involved long-term wiretaps. Shorter-term, simpler techniques—such as sending in informants who are wired to confront an employer—are also permissible in healthcare cases.
Statistical sampling has become a hotly debated issue. Statistical sampling comes into play when the government or relator attempts to prove liability or damages only for claims within a statistical sample in order to avoid a more time-intensive claim-by-claim analysis. Unsurprisingly, defendants in cases supported by statistical sampling often object vehemently. Decisions have gone both ways—and the law on this issue is in flux.
In U.S. ex rel. Martin v. Life Care Centers of America, Inc. (E.D. Tenn 2014), statistical sampling was used to establish liability for lack of medical necessity claims that, in the past, would have needed to be established by proof for each individual patient. The court allowed expert testimony to establish liability for all 154,000 claims based on 400 random samples, acknowledging that a claim-by-claim review is often impractical, and that exclusion of statistical sampling would open the door to more fraudulent activity. Since Life Care, other courts have followed suit in allowing statistical sampling to establish liability.
There are cases, however, that go the other way, with courts rejecting statistical sampling. For example, in the U.S. ex rel. Wall v. Vista Hospice Care, Inc. (N.D. Tex. 2016), the court held that individual proof per patient is required to establish liability.
Clearly, the courts are going back and forth on the statistical sampling issue. The AseraCare Hospice case in Alabama illustrates the complexity of the statistical sampling challenge. In U.S. v. AseraCare Inc., 176 F. Supp. 3d 1282 (N.D. Ala. 2016), the court had originally permitted the use of statistical sampling based on more than 200 claims. It later reversed itself, however, and dismissed the case, holding that when two or more medical experts look at the same records and reach different conclusions about whether they support a certified physician’s medical opinion on hospice admissibility, all that exists is a difference of opinion and not sufficient evidence to demonstrate falsity under the False Claims Act.
The Responsible Corporate Officer Doctrine should concern corporate executives—and lead them to ensure that strong compliance programs are in place in their organizations. It allows responsible corporate executives to face criminal liability for failing to prevent, or even for not promptly correcting, violations that impact the health and well-being of the public.
The Responsible Corporate Officer Doctrine has been around for quite some time, but there has not been a lot of jurisprudence around it recently. In fact, the Supreme Court recently passed on an opportunity to revisit the issue in a case out of the Eighth Circuit, U.S. v. Decoster, 828 F.3d 626 (8th Cir. 2016). In that case, the Eighth Circuit upheld a three-month prison sentence for two commercial farm executives who had pled guilty to FDCA violations, leading to the introduction of salmonella-tainted eggs into interstate commerce.
The Eighth Circuit upheld the Responsible Corporate Officer Doctrine, saying that, under the Doctrine, a corporate officer is held accountable not for the acts or omissions of others but for his or her failure to remedy or prevent the conditions that caused the problem. In other words, executives in positions of responsibility don’t have to know that their companies violated the FDCA but are required to exercise sufficient care to prevent the introduction of tainted food into the stream of commerce.
The DOJ uses the Responsible Corporate Officer Doctrine sparingly. U.S. Attorneys are required to consult with the DOJ’s Consumer Protection Branch before they bring cases based on the Responsible Corporate Officer Doctrine, and are mindful of the fact that overuse could lead Congress to examine whether changes to the doctrine are warranted.
Related to the issues surrounding the Responsible Corporate Officer Doctrine is the Sally Yates memo from September 2015. The memo focuses on individual accountability for criminal conduct in a corporate setting and arose out of criticisms for what some perceive to be the failure to hold those involved in the 2008 financial crisis responsible.
To qualify for cooperation credit, companies must provide the DOJ with relevant facts pertaining to individual culpability.
Criminal and civil investigations should focus on individuals from inception.
Criminal and civil government attorneys should be in routine contact with each other during investigations.
Absent “extraordinary circumstances,” DOJ will not release individuals as part of settlements with companies.
Corporate cases should not be resolved without a clear plan to resolve related individual cases.
Civil attorneys should evaluate whether to bring suit against an individual based on considerations beyond that individual’s ability to pay.
On November 1, 2017, the Centers for Medicare & Medicaid Services (CMS) issued the final rule with comment period revising the Medicare hospital outpatient prospective payment system (OPPS) and the Medicare ambulatory surgical center (ASC) payment system for 2018. Among the changes, the rule reduces reimbursement for certain drugs procured under the 340B program from the average sale price plus 6% to the average sale price minus 22.5%, effectuating a nearly 30% cut in reimbursement for these drugs. See 82 FR 52356-01.
CMS contends that this reduced reimbursement measure will more accurately reflect the post-340B discount acquisition cost of drugs for covered hospitals and will lower drug costs for Medicare beneficiaries, whose copays are tied to Medicare reimbursement rates. In total, CMS estimates that the new rule will save Medicare $1.6 billion on OPPS drug expenditures, which will be redistributed to all providers within the OPPS system, because adjustments must be made in a budget-neutral manner.
On November 13, 2107, three hospital associations and three member hospitals sued the Department of Health and Human Services (HHS) and Eric D. Hargan in his official capacity as the Acting HHS Secretary to strike the payment methodology changes, alleging that the amendment exceeded the HHS Secretary’s (the Secretary) authority under the Social Security Act and will adversely impact affected hospitals’ ability to serve communities in general and vulnerable populations in particular.1 The lawsuit is The American Hospital Association, et al. v. Hargan, No. 1:17-cv-02447-RC (D.D.C.). Bipartisan federal legislation, H.R. 4392, also seeks to reverse the cuts.
The 340B program allows select providers known as “covered entities” to obtain reduced prices on “covered outpatient drugs” from manufacturers, which must offer the discounts as a condition of having their drugs covered through state Medicaid programs. The prices cannot exceed a “ceiling price” calculated pursuant to a statutory formula. 42 U.S.C. § 256b(a)(1).
The goal of the 340B program is to enable covered entities to “maximize scarce Federal resources, … reach more eligible patients, and provid[e] care that is more comprehensive.” H.R. Rept. No. 102-384(II), at 12 (1992).
The 340B program, initially available to certain publicly funded and not-for-profit hospitals and clinics that served low-income patients, was expanded in 2010 by the Patient Protection and Affordable Care Act (ACA) to additional providers, including certain children’s hospitals, free-standing cancer hospitals, critical access hospitals and sole community hospitals. Approximately 40% of all hospitals now participate.
Medicare Part B covers outpatient hospital care and pays for certain designated services, including drugs, under the OPPS. CMS updates OPPS rates annually and may set rates for separately payable drugs, i.e., drugs that are not bundled with other outpatient services, in one of two ways. The payment amount is based either on “the average acquisition cost,” or “if hospital acquisition cost data are not available,” on “the average price …” See 42 U.S.C. § 1395l(t)(14)(A)(iii). The default statutory rate for the second option is “106 percent” of the “average sales price,” (ASP) or ASP+6%, but may be “calculated and adjusted by the Secretary as necessary …” Id.
Since 2006, when CMS began setting OPPS stand-alone drug reimbursement rates pursuant to the above methodology, payment has been based on the average sales price, ranging from ASP+4% to ASP+6%, because CMS could not obtain reliable acquisition cost data. CMS explained, however, that these rates approximated acquisition costs. From 2013 until the recent rule change, CMS set reimbursement at the ASP+6% statutory default rate.
For 2018, CMS will reduce reimbursement for separately payable drugs acquired under the 340B program from ASP+6% to ASP minus 22.5%, which amounts to an almost 30% reduction from prior rates. Vaccines and certain hospitals—rural sole community hospitals, children’s hospitals and prospective payment system-exempt cancer hospitals—are excluded from this payment adjustment in 2018. Additionally, the payment reduction will not affect hospitals reimbursed outside of the OPPS, such as critical access hospitals. In all, the adjustment affects approximately half of 340B covered entities.
CMS explained that the rule aims to lower the cost of prescription drugs for Medicare beneficiaries and furthers the Trump administration’s broader efforts to reduce pharmaceutical prices. CMS justified the new rule based on reports showing that, at current rates, hospitals generate substantial profits, subsidized by Medicare beneficiaries, and that the existence of a profit motive impacts prescribing behavior. Therefore, CMS sought to better align reimbursement rates with hospitals’ 340B acquisition costs.
First, CMS explained that the new rate more accurately reflects the acquisition costs of drugs by 340B hospitals based on a May 2015 report by the Medicare Payment Advisory Commission (MedPAC),2 which found that 22.5% of the ASP is the minimum average discount received by 340B hospitals for drugs paid under OPPS. Other studies indicate that discounts may be even higher. For example, a 2015 Government Accountability Office report estimated that the 340B discounts range from 20% to 50%. A 2015 HHS Office of Inspector General report found that Medicare payments exceeded 340B ceiling prices by 58%.
Additionally, CMS cited reports indicating that 340B hospitals prescribed more drugs or more expensive drugs compared with their noneligible counterparts, suggesting that program incentives impacted treatment decisions. The 340B hospitals outpaced non-340B providers in terms of both overall Medicare spending growth and per-beneficiary expenditures. Discrepancies were not explained by differences in hospital characteristics or patients’ health status.
The new methodology is expected to save CMS $1.6 billion in drug reimbursement expenditures. These savings will be redistributed within the OPPS system, because OPPS adjustments must be budget-neutral. That is, adjustments for a year may not cause the estimated amount of expenditures for the year to increase or decrease from the estimated amount of expenditures that would have been made without the adjustments.
On November 13, 2017, three hospital associations and three member hospitals filed a lawsuit in the United States District Court for the District of Columbia, seeking to strike the OPPS rate changes for affected 340B hospitals. Plaintiffs claim that the new rule violates the Social Security Act, and therefore should be set aside pursuant to the Administrative Procedure Act (APA) as unlawful and in excess of the Secretary’s statutory authority.
Plaintiffs argue that the Secretary exceeded statutory authority in two ways. First, in adjusting the statutory rate of ASP+6% to ASP minus 22.5% on the ground that the new formula better approximates the average acquisition cost of drugs for 340B-eligible hospitals, CMS created a hybrid payment methodology that imported consideration of average acquisition cost from 42 U.S.C. § 1395l(t)(14)(A)(iii) subpart (I) into the formula based on ASP in subpart (II), without satisfying the requirements of either of the two statutory options.
Plaintiffs allege that the adjustment is improper under subpart (I) because rates cannot be set based on average acquisition cost without using “statistically significant” “hospital acquisition cost survey data,” 42 U.S.C. § 1395l(t)(14)(A)(iii)(I), (D), which CMS does not have. They argue the adjustment is improper under subpart (II), which CMS purports to apply, because an adjustment made in order to approximate acquisition costs is not a “calculat[ion] or adjust[ment] … as necessary” of the “average price for the drug …” Id. § (A)(iii)(II). Nor is a nearly 30% departure from the statutory default rate of ASP+6% properly characterized as an “adjustment,” which plaintiffs claim must be limited to minor changes to account for overhead and similar expenses.
Second, plaintiffs claim that CMS, in seeking to align the acquisition costs of 340B beneficiaries with Medicare reimbursement rates, in fact thwarts the 340B statutory scheme which, to the contrary, was designed to generate funding for eligible hospitals vis-à-vis the existence of this very differential.
Plaintiffs allege that the new rule would immediately cut essential health programs and move for a preliminary injunction to avert irreparable harm.
In response, on December 1, 2017, defendants filed a motion to dismiss. HHS argues that plaintiffs fail to state a claim, both due to procedural impediments and on the merits. Procedurally, HHS contends that the claim fails for three reasons. First, the court has no jurisdiction because all administrative and judicial review of “the development of the [OPPS] classification system,” including adjustments, and fee schedule amounts for particular drugs, is foreclosed by statute. 42 U.S.C. § 1395l(t)(12)(A), (E). Second, the action is unreviewable because statutory authority to adjust OPPS payment rates “as necessary,” is not limited by any governing principle, and, as a result, is left to the Secretary’s discretion by law. Third, plaintiffs are not properly before the court because they failed to exhaust administrative remedies.
Defendants also argue that plaintiffs’ claim fails on the merits. Contrary to plaintiffs’ assertions, the statute does not restrict the amount of adjustment nor preclude the Secretary from considering “acquisition cost” when making an “adjustment as necessary” to rates determined based on ASP. Therefore, the Secretary may properly consider whether reimbursement methodology gives providers outsized profits at the expense of Medicare beneficiaries.
Defendants likewise argue that the new rule does not undermine the 340B program, nor would it be relevant if it did. Defendants emphasize that the 340B program and the Medicare program are distinct programs administered by separate agencies, which makes congressional intent for the 340B program immaterial to Medicare Part B and OPPS rate setting, and likewise makes it impossible for the Secretary to exceed authority to set OPPS rates by undermining the goals of an entirely different statute.
Moreover, defendants argue that the rule does not in fact undermine the 340B program. First, because the 22.5% downward adjustment for ASP reflects only the minimum discount, it will not eliminate the differential between Medicare reimbursement and acquisition costs and will still allow hospitals to retain a profit. Moreover, the core purpose of the 340B program, to lower acquisition costs of drugs for 340B entities, remains intact regardless of Medicare reimbursement. Under any circumstance, defendants argue that the Secretary is entitled to Chevron deference because the Secretary’s interpretation of the rate-setting provisions is reasonable.
Defendants oppose the motion for a preliminary injunction because they contend plaintiffs have not shown a likelihood of success on the merits, will suffer a purely economic (and thus not irreparable) injury, and also because the harm to defendants from the imposition of a preliminary injunction will outweigh any detriment to plaintiffs. Adjustment to any portion of the OPPS will require offsets to other reimbursement provisions because of budget neutrality requirements, and therefore will have systemwide effects due to the interdependent nature of the overall OPPS reimbursement scheme.
The hearing on the motion to dismiss and the application for a preliminary injunction is scheduled for December 21, 2017, before Judge Rudolph Contreras.
On November 15, 2017, Representatives Mike Thompson (D-CA) and David B. McKinley (R-WV), introduced H.R. 4392 to reverse the cuts. This proposed legislation follows a September 28, 2017, letter, signed by 228 representatives from both parties, urging CMS not to adopt the then-proposed rule as final. The bill has been referred to the Committee on Ways and Means and the Committee on Energy and Commerce. No further action has been taken to date.
In light of the pending litigation and legislation, the future of CMS’s rulemaking is uncertain. The court is scheduled to hear HHS’s motion to dismiss and plaintiffs’ motion for a preliminary injunction on December 21, 2017.
1The plaintiffs are the American Hospital Association, the Association of American Medical Colleges, America’s Essential Hospitals, Eastern Maine Healthcare Systems, Henry Ford Health System, and Fletcher Hospital, Inc., dba Park Ridge Health.
2MedPAC is an independent federal commission comprised of experts in the financing and delivery of healthcare services that advises Congress on issues affecting the administration of the Medicare program.
Editor’s Note: Low-income adults who need and use long-term services and supports (LTSS) are among the most complex and fast-growing populations covered by Medicaid. Organizing and paying for this much-needed assistance in ways that allow older adults and adults with disabilities to live full and satisfying lives are among the greatest challenges that state officials face.
To help address these challenges, Manatt Health and the Center for Health Care Strategies, Inc., supported by The SCAN Foundation and the Milbank Memorial Fund, have created a new toolkit for states, “Strengthening Medicaid Long-Term Services and Supports in an Evolving Policy Environment.” Based on interviews with experts and implementers in innovator states, the toolkit provides an overview for state Medicaid officials and other stakeholders interested in understanding or developing state strategies for this increasingly important issue and seeking to identify tested approaches for their states or communities. Below is a summary of key points. Click here to download the full report.
Long-term services and supports (LTSS) enable more than 12 million people—including older adults, as well as adults and children with intellectual and developmental disabilities (I/DD) and mental health issues, among other conditions—to meet their personal care needs and live independently in a variety of community and institutional settings. With LTSS expenditures of more than $140 billion annually, Medicaid is the single largest payer of these critical services.
The aging population’s projected growth—18% by 2020 and doubling by 2060—will only increase demand for LTSS and, in turn, put more pressure on Medicaid at both federal and state levels. As a result of these demographic and fiscal challenges, as well as federal policy and funding priorities, states are seeking to reform their Medicaid LTSS systems both to improve the quality of care for beneficiaries and to contain program costs.
The strategies can be mixed and matched, sequenced in different ways and modified to accommodate state preferences. Reforming LTSS is a journey, with tangible and meaningful gains along the way.
Since the beginning of the Medicaid program, states were required to provide nursing facility services to eligible individuals, but most home- and community-based services (HCBS)—such as case management and personal care services—were optional, and for many years, the federal authorities and level of federal funding for HCBS were limited. Though HCBS continues to be optional, changes in federal laws and state-initiated actions—driven by individual and family preferences, state interest, legal obligations, and the relative cost-effectiveness of providing care in the community—have led to a dramatic increase in the proportion of LTSS provided in community settings.
Tennessee’s workforce development program, aligning opportunities for direct service worker training and degree attainment with LTSS quality measures, and rewarding providers who employ a well-trained workforce.
Tennessee’s transition of individuals from nursing facilities to the community.
Vermont’s use of an 1115 waiver to expand HCBS to people at risk of needing intensive LTSS.
While the majority of Medicaid beneficiaries nationwide are now enrolled in managed care, the same does not hold true for Medicaid beneficiaries who use LTSS, including those eligible for both Medicare and Medicaid (known as dually eligible beneficiaries) and those with I/DD. Instead, many states have kept LTSS beneficiaries in fee-for-service arrangements, in part due to beneficiary and family concerns about ensuring continued access to critical nonmedical services and supports, as well as to health plans’ limited experience with LTSS in general and HCBS in particular.
Minnesota’s alignment of its administrative processes to support Minnesota Senior Health Options (MSHO) program beneficiaries.
Virginia’s Commonwealth Coordinated Care program, which integrates all LTSS, medical and behavioral health services under one program for Medicaid-only beneficiaries.
New York’s 1115 waiver that creates care coordination organizations to integrate primary care, behavioral health and social support services with LTSS for the I/DD population.
There is no one-size-fits-all approach to the challenge of LTSS system reform. A useful starting point for all states is to assess their current LTSS landscape and reflect on the challenges and successes, as well as the reasons behind them. Based on that assessment, states can set a strategic vision and course of action.
States embarking on LTSS reform will be at different starting points and move at varying paces. Regardless of the starting point and strategies, efforts to improve efficiency and access to service and to modernize care delivery for vulnerable populations is a commendable and visionary action.
It is both possible and preferable to approach the challenge of reforming statewide LTSS with an overall strategy, while understanding that the progress made will be incremental for most states. States will need to creatively leverage funding sources and new flexibilities to support their reforms. For the majority of states that use managed care, it can play a central role in facilitating and shaping care delivery, but states themselves must continue to drive the policy agenda and the broad vision for change beyond the existing service delivery system.
Build and sustain beneficiary engagement and buy-in. These stakeholders are the most important allies and the heart of any LTSS program.
Invest in administrative capacity—both people and data.
Invest in federal partnerships. Know what is needed from the Centers for Medicare & Medicaid Services (CMS) and why—and work to get it.
Cultivate executive and legislative leadership. These champions will always be necessary for system-level change.
Think long-term. Create and drive a vision that transcends administration and policy priorities.
With the Federal Trade Commission’s successful track record in challenging mergers of provider systems operating in the same geographic area, several hospitals are looking farther afield for merger partners. One recent example of such a deal is the December announcement that Illinois-based Advocate Health Care (Advocate) plans to merge with Wisconsin-based Aurora Health Care (Aurora) to create a 27-hospital system. This announcement comes less than a year after Advocate abandoned its plans to merge with fellow Illinois-based NorthShore University Health System (NorthShore) after a federal judge ultimately granted the Federal Trade Commission’s request for a preliminary injunction.
The Advocate/Aurora deal does not fit within traditional FTC enforcement paradigms. Advocate and Aurora do not have a direct geographic overlap in the service areas of their facilities and have not historically been direct head-to-head competitors for inclusion in insurer networks. But the transaction raises the interesting enforcement question of whether provider mergers across market boundaries can still raise competition concerns.
In September 2014, Advocate announced its plans to merge with NorthShore. The FTC and the State of Illinois challenged the merger in December 2015. Although the FTC initially lost its bid for a preliminary injunction at the District Court in June 2016, in October 2016, the Seventh Circuit Court of Appeals reversed. On remand, the District Court granted the injunction, and the parties subsequently abandoned their transaction.
As the Court of Appeals explained, the case hinged on the proper definition of geographic markets for hospitals. Because patients generally prefer to receive general acute care services close to home, employers require, and insurers must offer, health plans that provide patients with access to in-network hospitals near where they live. Insurance executives testified that an insurer’s network must include either Advocate or NorthShore. Evidence that some—or even many—patients are willing to travel does not overcome this conclusion. As a result, the geographic market was conservatively defined as an eleven-hospital area in the northern suburbs of Chicago that included six of the defendants’ hospitals.
This time, Advocate has looked outside its current region for a merger partner. Aurora operates 15 hospitals in Wisconsin and only a couple of health centers in northern Illinois, all geographically distinct from the Advocate system. According to the parties, the transaction will create the tenth largest not-for-profit integrated healthcare system in the U.S.
Historically, “cross-market mergers”—transactions involving important hospitals in geographically distinct areas—have fallen outside the scope of FTC concern. Over the last several years, however, several commentators have questioned whether large provider systems encompassing multiple (but generally adjoining or nearby) geographic markets may have an anticompetitive impact in limiting the ability of health plans to negotiate favorable rates. See G. Vistnes and Y. Sarafidis, Cross-Market Hospital Mergers: A Holistic Approach, 79 Antitrust L.J. 253 (2013).
In 2016, a study by Dafny, Ho and Lee examined 500 hospital mergers between 2000 and 2012, finding that mergers of hospitals in different geographic markets in the same state (as much as 90 minutes driving time apart) drove up hospital prices by 6 percent to 10 percent. In addition, the former FTC Chairwoman, Edith Ramirez, suggested in May 2016 that, while the FTC has “focused [its] enforcement efforts on horizontal mergers between competing healthcare providers,” it also receives complaints “that provider consolidation in non-overlapping geographic or product markets may also lead to higher prices…” and is “continuing to explore” this area. FTC Chairwoman Edith Ramirez, Keynote Address at the Antitrust in Healthcare Conference, Arlington, VA (May 12, 2016).
The basis for antitrust concerns with such transactions is that even geographically distinct hospitals have common insurer customers, and such transactions can enhance bargaining leverage. Given the state-by-state nature of health insurance regulation, in-state cross-market transactions raise more obvious concerns than mergers across state lines, where the payers in each state may be different. In the Advocate/Aurora transaction, given the proximity of Aurora’s southern facilities to the Illinois border and the fact that Aurora appears to be in-network for BCBS of Illinois as well as large, national private insurers, the FTC can be expected to look closely at the potential impact of the transaction on pricing to the region’s insurers.
Since its success in challenging the consummated Evanston Northwestern/Highland Park merger in 2008, the FTC had maintained a consistent approach to hospital mergers, focusing exclusively on horizontal mergers between competing healthcare providers and narrow geographic markets. Further, federal courts have endorsed the FTC’s reasoning and economic analysis on this basis. In the Advocate/Aurora transaction, the two health systems have separate geographic footprints, so any enforcement action would be a major departure from the traditional approach, and probably unlikely. Having said that, the transaction will certainly get a close look by the FTC and the Illinois and Wisconsin state attorneys general. And given the current enforcement environment, we can expect to see more transactions like this that potentially raise cross-market issues.
As of the time of publication, the Environmental Protection Agency (EPA) has just published its Fall Regulatory Agenda (December 14, 2017). The Regulatory Agenda establishes the agency’s rulemaking priority. In addition to foreshadowing President Trump and EPA Director Scott Pruitt’s scaling back of environmental regulations, notable here is that the agency proposes a July 2018 final rulemaking for the proposed regulation governing the management of hazardous waste pharmaceuticals. The comment period on the original proposed rule closed in late 2015. Over the course of the next several months, we will work with Agency contacts, state environmental regulators and stakeholders to track and assist in understanding EPA’s final rule incorporating responses to comments.
Stay tuned for Manatt’s updates and further analysis regarding the rule’s impact on retail pharmacies and other healthcare facilities. For more information, please contact Manatt partners Ted Wolff at twolff@manatt.com or Matt Williamson at mwilliamson@manatt.com.

References: v. 
 v. 
 v. 
 v. 
 v. 
 § 256
 § 1395
 § 1395
 § 1395
 § 1395