CMS Issues Interim Final Rule on New Competitive Acquisition Program for Physician Administered Drugs
On June 27, 2005, the Centers for Medicare & Medicaid Services (CMS) issued its interim final rule establishing a new competitive acquisition program ("CAP") for physician administered drugs. Starting January 1, 2006, the CAP program will offer physicians who administer drugs in their offices under Medicare Part B the option to acquire drugs from vendors who are selected in a competitive bidding process.

Under the CAP program, physicians may choose to obtain physician administered Part B drugs from vendors selected by Medicare. If electing to participate in CAP, Physicians would no longer purchase the drug and bill Medicare; instead, the selected CAP vendors would bill Medicare directly for the drugs and be responsible for collecting any deductibles and coinsurance from the beneficiary, thus saving the physician time and paper work (and hopefully eventually lowering drug costs for all).

Alternatively, Physicians could continue to purchase drugs directly from the market, and be reimbursed by Medicare at the statutorily established rate (for most drugs 106% above the average sales price). With either option, Medicare will continue to pay the physicians to administer the Part B drugs.

Physicians will elect to participate in the CAP program on an annual basis. The initial physician election process is scheduled to being October 1, 2005.

A vendor wishing to bid for a contract to supply Medicare Part B drugs administered in a physicians office, must submit a bid to Medicare (and must submit an 855B form and be approved as a Medicare supplier). To be eligible, a vendor must first demonstrate that it meets the regulation's standards for quality, program integrity, financial stability, and service; of those qualified bidders, winning vendors would be selected based on bid price.
  
OIG Proposes New Safe Harbor for Certain Provider Arrangements with Public Health Centers 
In the July 1 Federal Register, the Department of Health and Human Services Office of Inspector General ("OIG") proposed new standards for an anti-kickback safe harbor for certain financial arrangements between public health centers and other health care providers and suppliers.

Created under section 330 of the Public Health Service Act, federally funded public health centers provide community-based health care services in underserved areas. While the public health centers are funded with Public Health Service ("PHS") grants, health care providers and suppliers often offer or enter into certain financial arrangements with the public health centers. There has been some concern, however, that these arrangements, intended to further the mission of the PHS grants, may be suspect under the anti-kickback statute, because the public health centers may be in a position to refer patients covered by federal health care programs to those providers.

To help address concerns that financial arrangements with federally funded public health centers may implicate the anti-kickback statute, Congress (in the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 or "MMA") called for the creation of a safe harbor that would exempt certain remuneration and arrangements from scrutiny, provided that certain conditions are met.

The proposed safe harbor requirements include:

  • Arrangements must provide benefit directly to the public health centers, and not the individual or entity providing the payment;
  • Arrangements should not limit patients' freedom to choose services from any provider or supplier; and
  • Arrangements should not improperly steer clinical decisions based on financial interests. 

Minnesota Supreme Court Upholds Tax on Health Care Provider Revenues
On June 30, 2005, the Minnesota Supreme Court ruled that a statutory scheme, exempting from Minnesota's state provider gross revenue tax only those revenues received from another health care provider subject to the tax, was constitutional. Mayo Collaborative Services Inc. v. Minnesota Commissioner of Revenue, Minn. No. A04-2190, 6/30/05. Rejecting a claim that the statute effectively, and unconstitutionally, resulted in double taxation on services sold to and provided by other entities in surrounding states, the Minnesota Supreme Court found that the scheme was fairly apportioned and did not on its face discriminate against interstate commerce.

Under the Minnesota statutory scheme, health care providers are taxed on all gross revenues. The scheme provides a resale exemption that permits providers to exclude revenue received from other providers subject to the tax who re-sell those same health care services. For example, a health care provider that sells laboratory services to another provider (who in turn re-sells the services to the end-payer, and is thus subject to the MinnesotaCare tax on that re-sale) is not liable to pay tax on those revenues, because the other provider was ultimately liable for the MinnesotaCare tax on those services. The exemption does not apply, however, to the sale of services to non-Minnesota entities, as those entities would not be ultimately subject to the tax for revenues earned on the re-sale.

Thus, under the current taxing scheme, Minnesota health care providers are subject to MinnesotaCare tax liability on revenues derived from the sale of health care services to other non-Minnesota health care providers, but are not subject to tax on services sold to in-state health care providers. 

Medical College Agrees to Pay $4.4 Million to Resolve NIH Grant Misuse Charges 
On June 21, 2005, a federal district court judge approved a settlement agreement whereby the Weill Medical College of Cornell University agreed to pay $4,385,696 to resolve NIH grant misuse charges. United States v. Weill Medical College of Cornell University, S.D.N.Y., No. 03-6761 (settlement approved 6/21/05).

The civil False Claims Act case, brought on behalf of the United States by a qui tam plaintiff, alleged that Weill (and its physician-investigators) had defrauded the government and made false statements to the NIH in its administration of the grant, renewal applications, and grant fund expenditures. Specifically, the complaint alleged that the college improperly allowed one physician-investigator (and one medical discipline) to dominate the research, when grant guidelines mandated that the funds be spent to support a variety of scientific disciplines. The complaint further alleged that the college improperly paid staff salaries out of grant funds, failed to account for outpatient costs charged to the grant, and double-billed the Medicaid program for certain services already charged to the grant.

Prosecuting U.S. Attorney, David N. Kelley, stated that the settlement demonstrates the government's resolve to protect research funds and "to ensure that they are spent only for the purposes for which they are awarded."

The medical college denied any wrongful conduct or liability. In the settlement agreement, however, it agreed not to raise any double jeopardy or excessive fine defenses, should further criminal prosecution or administrative action ensue.

Court Rules that False Claims Act Complaints Must Contain Specific Allegations Regarding Procedures Allegedly Not Performed as Claimed 
In a recent decision a Florida federal court re-affirmed an earlier Eleventh Circuit finding that Rule 9(b) applies to qui tam actions under the Federal False Claims Act, and therefore fraud must be alleged with sufficient particularity (including, for example, specific allegations regarding the date, amount, or basis of a single claim). United States of America v. Capital Group Health Services of Florida, et al., Case No. 4:02vc38-RH/WCS (decided June 7, 2005). The federal court further held that a qui tam complaint cannot offer mere conjecture; instead, to comply with Rule 9(b), some indicia of reliability must be given to support the allegation of an actual false claim for payment.

The qui tam complaint alleged that defendants-a hospital, a health maintenance organization and a psychiatrist-participated in a scheme involving the submission of false claims to the state and federal governments for services allegedly provided to medicare and medicaid beneficiaries. Specifically, the complaint alleged four types of false claims: (1) claims submitted by the psychiatrist for services not rendered ("phantom claims") or that were exaggerated for billing purposes ("upcoded claims"); (2) claims submitted by the psychiatrist where he falsely represented that he complied with applicable statutes when he allegedly had violated the anti-kickback statutes by compensating the defendant HMO for referrals; (3) claims submitted by the hospital where it falsely represented compliance when it allegedly had violated the anti-kickback statutes by compensating the psychiatrist and HMO for referring patients; and (4) claims submitted by the hospital where it falsely represented compliance when it allegedly maintained a "financial relationship" with the psychiatrist in violation of the Stark statute.

The Court dismissed the complaint to the extent it was based upon the second, third and fourth categories of false claims (as described above), finding that the complaint failed to allege the fraud with adequate specificity and/or failed to allege an adequate basis for the whistleblower's knowledge (finding instead that the complaint improperly contained mere conjecture). Notably, the Court dismissed one portion of the complaint because it failed to set forth specific facts regarding the allegedly false submissions (including, for example, the date, amount or basis of even a single claim).

The Court upheld the complaint's allegations regarding the submission of phantom or upcoded claims, noting that the complaint included examples of specific bills, for specific procedures, performed on specific dates. The Court further noted that the complaint demonstrated personal knowledge of these allegations, and thus provided some indicia of reliability to support this claim.