Ross C. D'Emanuele

Stark Law Reform Initiatives The Centers for Medicare & Medicaid Services (CMS) Administrator Seema Verma recently identified federal physician self-referral law (or “Stark Law”) reform as a top policy priority and reported that an inter-agency group is being formed to review the law. Specifically, in a January 17 American Hospital Association Town Hall webcast focused on regulatory relief for hospitals and health systems (excerpt available here), Verma reported that CMS will be looking to modernize the Stark Law to reflect the move from fee-for-service to value-based payments under Medicare. According to Verma, the Stark Law was one of the top responses from providers to a CMS request asking providers to identify the most burdensome regulations. Because the Stark Law is not completely in CMS’s jurisdiction, an inter-agency group is being formed to look at Stark Law reform initiatives that will include CMS, the Department of Health and Human Services (HHS) Office of Inspector General, the HHS General Counsel, and the Department of Justice. Verma also indicated that then-acting Secretary of HHS Eric Hargan was interested in the issue. Lastly, Verma specified that Congressional intervention may be required. While not mentioned by Verma in the recent webcast, a bill that addresses modernizing the Stark Law in light of the shift to value-based payment under Medicare, titled the “Medicare Care Coordination Improvement Act of 2017,” was introduced in both the U.S. House of Representatives (H.R. 4206) and the Senate (S. 2051) on November 1, 2017. The bill is still under consideration in both the House and the Senate. If enacted, this bill would give HHS authority to grant waivers to fraud and abuse-related statutes for participants in the Medicare Shared Savings Program, i.e., accountable care organizations. Such waiver authority would be extended to “covered APM entities” such as entities participating in alternative payment models (or “APMs,” as defined by MACRA) and similar entities. Additionally, the bill would expand the authority of HHS to promulgate ownership and compensation exceptions to the Stark Law to promote care coordination, by expanding the HHS Secretary’s authority to provide exceptions for financial relationships not posing a “significant risk of program or patient abuse, including those that would promote care coordination, quality improvement, or resource conservation by physician practices under [Medicare] part B” (emphasis added), rather than the current standard for exceptions, which requires that excepted arrangements not pose a “risk of program or patient abuse.” It would also limit the Secretary from imposing requirements that could adversely affect care coordination or participation in APMs. Finally, it would establish a new statutory exception to the Stark Law for services furnished pursuant to an arrangement entered into for the purpose of developing or operating an APM, provided the arrangement meets certain requirements including that it is in writing, that services are furnished at fair market value and that semi-annual reports are submitted to the Secretary on the progress of the APM (among other requirements). Further, while not addressing modernizing the Stark Law in light of the shift to value-based payment under Medicare, two additional bills that would amend the Stark Law are currently pending. First, H.R. 3726, the “Stark Administrative Simplification Act of 2017,” was introduced in the House on September 11, 2017. This bill proposes an alternative protocol to the Stark self-referral disclosure protocol (SRDP) for inadvertent technical noncompliance (including, for example, compensation arrangements with an inadvertent missing signature) with the Stark Law and reduced civil monetary penalties for disclosures made pursuant to this alternative protocol. This bill is still under consideration in the House. Second, H.R. 3178, titled the “Medicare Part B Improvement Act of 2017”, was passed in the House in July 2017 and is currently pending in the Senate. Among non-Stark Law-related provisions, if enacted, this bill would codify in the Stark Law certain regulatory changes that went into effect on January 1, 2016 (and corresponding clarifications via preamble by CMS) regarding the writing requirement of the Stark Law compensation exceptions, temporary non-compliance with the signature requirement of the Stark Law compensation exceptions, and the indefinite holdover provision for the lease of office space or equipment and personal services arrangements exceptions. It remains to be seen where the above-described legislation will lead, and what additional legislative and/or regulatory initiatives will be pursued given the stated focus on Stark Law reform by CMS Administrator Verma, the inter-agency group formed to review Stark Law changes, and the new HHS Secretary Alex Azar. 2018 DHS Code List and CPI-U Updates The 2018 Medicare Physician Fee Schedule (PFS) final rule, which took effect on January 1, included the annual update to the list of CPT/HCPCS codes used to identify certain categories of Stark designated health services (DHS) (the Code List).  As we explained in our post on the 2017 PFS, the Stark Law regulations at 42 C.F.R. § 411.351 specify that the following four categories of DHS are defined by reference to the Code List: (1) clinical laboratory services; (2) physical therapy, occupational therapy, and outpatient speech-language pathology services; (3) radiology and certain other imaging services; and (4) radiation therapy services and supplies.  (The other categories of DHS—which are (1) durable medical equipment and supplies; (2) parenteral and enteral nutrients, equipment and supplies; (3) prosthetics, orthotics, and prosthetic devices and supplies; (4) home health services; (5) outpatient prescription drugs; and (6) inpatient and outpatient hospital services—are defined at 42 C.F.R. § 411.351 without reference to the Code List.) The Code List is updated annually to reflect changes in the most recent CPT and HCPCS Level II publications and to account for changes in Medicare coverage and payment policies. Further, items and services that may qualify for either of two Stark Law exceptions—the exception for preventive screening tests, immunizations and vaccines at 42 C.F.R. § 411.355(h) and the exception for EPO and other dialysis-related drugs at 42 C.F.R. § 411.355(g)—are identified by reference to the Code List.  The Code List included the annual updates to the codes eligible for the preventive screening tests, immunizations and vaccines exception.  However, as in previous years, the Code List does not include any codes eligible for the EPO and other dialysis-related drugs exception (for reasons explained by CMS in the rule). The PFS rule includes tables showing the additions and deletions to the Code List.  As per usual, the complete list was posted to the CMS website dedicated to the Code List, found here. Finally, per the CPI-U Updates page of the CMS Stark website, CMS updated the compensation limits for the nonmonetary compensation exception (at 42 C.F.R. § 411.357(k)) and medical staff incidental benefits exception (at 42 C.F.R. § 411.357(m)), which are both updated annually for inflation. For calendar year 2018, the non-monetary compensation limit is $407 and medical staff incidental benefits must be less than $34 per occurrence. (CMS also noted in a footnote on this page that, “From November 9, 2016, through November 16, 2017, the CY 2015 nonmonetary compensation limit was inadvertently listed on this website as $395 instead of $392.”)

In a prior blog post from September 8, 2017, we wrote about the many ways in which states are addressing the opioid crisis through legislation. One of the states we discussed was New Jersey who at the time had proposed a new rule to regulate the relationship between manufacturers and prescribers. This month that New Jersey rule became final. On January 16, 2018 the New Jersey Attorney General issued final regulations entitled Limitations On and Obligations Associated with Acceptance of Compensation from Pharmaceutical Manufacturers by Prescribers (“the Rule”). The stated intent of the Rule is to minimize the potential for conflicts of interest and reduce incentives for treatment decisions to be influenced by payments from drug manufacturers, thereby encouraging healthcare practitioners who prescribe to focus on the patient's best interests.[1] The Rule became effective on January 16, 2018. The Rule does not apply to contracts entered into on or before January 15, 2018.[2] Second, the Rule only prohibits “prescribers” (defined as physicians, podiatrists, physician assistants, advanced practice nurses, dentists, and optometrists licensed in New Jersey) from accepting certain compensation from pharmaceutical manufacturers; the Rule does not prohibit the offering or payment of any compensation.[3]  In other words, the Rule does not authorize any penalties or other enforcement action against any pharmaceutical manufacturer; rather the various New Jersey professional licensing boards have authority to take enforcement action against prescribers for accepting prohibited compensation. Prohibited Gifts and Payments A New Jersey prescriber may not accept, directly or indirectly, any of the following from a pharmaceutical manufacturer or a manufacturer’s agent: Any financial benefit or benefit-in-kind, including, but not limited to, gifts, payments, stock, stock options, grants, scholarships, subsidies, and charitable contributions, except as specifically permitted by the Rule. Any entertainment or recreational items (e.g., tickets to theater or sporting events, or leisure or vacation trips). Items of value that do not advance disease or treatment education, including, but not limited to: Pens, note pads, clipboards, mugs, or other items with a company or product logo; Items intended for the personal benefit of the prescriber or staff, such as floral arrangements, sporting equipment, or artwork; Any payment in cash or a cash equivalent; or Any payment or direct subsidy to a non-faculty prescriber to support attendance at, as remuneration for time spent attending, or for the costs of travel, lodging, or other personal expenses associated with attending, any education event or a promotional activity. Any meals unless permitted as described below under Permitted Gifts and Payments.[4] “Pharmaceutical manufacturer" means any entity: engaged in the production, preparation, propagation, compounding, conversion, or processing of prescription drugs or biologics, by extraction from substances of natural origin, or independently by means of chemical synthesis; or directly engaged in the packaging, repackaging, labeling, relabeling, or distribution of prescription drugs or prescription biologics. “Pharmaceutical manufacturer's agent" or "manufacturer's agent" means a person who, while employed by, or under contract with, a pharmaceutical manufacturer, engages in detailing, promotional activities, or other marketing of prescription drugs or biologics to any prescriber authorized to prescribe, dispense, or purchase prescription drugs, biologics, healthcare facility, or pharmacist, but shall not include a prescriber or pharmacist when acting within the ordinary scope of the practice for which he or she is licensed.[5] Permitted Gifts The following permitted gifts and payments from pharmaceutical manufacturers or manufacturer’s agents are permitted: Items designed primarily for educational purposes for patients or the prescriber that have minimal or no value to the prescriber outside of his/her professional responsibilities (e.g., anatomical models). A subsidized registration fee at an education event, if that fee is available to all participants. Modest meals, worth no more than $15 per prescriber[6], provided by an event organizer at an education event, but only if the meals facilitate the educational program to maximize prescriber learning. Modest meals, worth no more than $15 per prescriber, provided by a manufacturer to non-faculty prescribers at a promotional activity. Compensation, based on fair market value, for providing bona fide services as a speaker or faculty organizer or academic program consultant for an education event which may also include reasonable payment and remuneration for travel, lodging, and other personal expenses associated with such services, and continuing education credit if applicable. Compensation, based on fair market value, for providing bona fide services as a speaker or faculty organizer or academic program consultant for a promotional activity, or for participation on advisory bodies or under consulting arrangements. A prescriber may also accept reasonable payment for travel, lodging, and other expenses associated with such services, but may not accept continuing education credit. Compensation, based on fair market value, for participation on advisory bodies or under consulting arrangements. Reasonable payment or remuneration for travel, lodging, and other expenses in connection with research activities. Reasonable payment to prospective applicants for travel, lodging, and other expenses in connection with employment recruitment. Royalties, licensing fees, or other arrangements regarding the purchase of intellectual property rights from a prescriber.[7] Sample medications intended to be used exclusively for the benefit of the prescriber’s patients, so long as the prescriber does not charge for these samples.[8] Bona Fide Services Payment Cap Prescribers are limited to a total of $10,000 in the aggregate per calendar year from all pharmaceutical manufacturers for speaking at promotional activities, participation on advisory boards, and consulting arrangements.[9] Permitted payments for speaking at education events (in contrast to payments for speaking at promotional activity) are not subject to the $10,000 cap but must be fair market value and set forth in a written agreement. Payments for research activities and payments for royalties and licensing fees are also not subject to this cap.[10] Research is defined to include pre- and post-market activities assessing the safety or efficacy of prescribed products as well as scientific advising on the development, testing, and evaluation of prescribed products.[11] "Bona fide services" means those services provided by a prescriber pursuant to an arrangement formalized in a written agreement including, but not limited to, presentations as speakers at promotional activities and education events, participation on advisory boards, and consulting arrangements. The written agreement shall specify the services to be provided, the dollar value of the consideration to be received by the prescriber, based on the fair market value of the services, specify that the meetings held in association with bona fide services occur in venues and under circumstances conducive to the services provided and that the activities related to the services are the primary focus of the meeting, and identify the following: The legitimate need for services in advance; The connection between the competence, knowledge, and expertise of the prescriber and the purpose of the arrangement; How participation of the prescriber is reasonably related to achieving the identified purpose; The manner by which the prescriber will maintain records concerning the arrangement and the services provided by the prescriber; and An attestation that the prescriber's decision to render the services is not unduly influenced by a pharmaceutical manufacturer's agent.[12] "Bona fide services" does not include services provided by a prescriber in connection with research activities. Required Disclosures Prescribers speaking at an education event or for a promotional activity must directly disclose to attendees, either orally or in writing, at the beginning of the presentation that they have accepted payment from the sponsoring manufacturer within the preceding 5 years.[13] A prescriber who is an employee of a pharmaceutical manufacturer and who also provides patient care must disclose this to patients, but those employees are exempt from the compensation prohibitions of the Rule.[14] Conclusions The final Rule will certainly impact the interaction between manufacturers and prescribers licensed in New Jersey. A key difference between the New Jersey Rule and other state laws and voluntary ethics codes addressing relationships between pharmaceutical manufacturers and prescribers is that the New Jersey Rule is directed at prohibiting New Jersey licensed prescribers from accepting prohibited compensation. Until now, much of the federal and state law (other than anti-kickback statutes) regulating this area has focused on prohibiting manufacturers from paying prescribers certain types or levels of compensation (or mandating disclosure of such payments). In contrast, the Rule places at risk the professional licensure of a New Jersey prescriber if they accept a prohibited payment. This New Jersey rule regulating the relationship of manufacturers and prescribers is one of several approaches to curb the opioid crisis and increase transparency and may become a model as other states evaluate how to stem the tide of this growing epidemic. [1] See Attorney General Response to Comment 1, 50 N.J.R. 578(a). [2] N.J.A.C. § 13:45J-1.1A. [3] N.J.A.C. § 13:45J-1.2. [4] N.J.A.C. § 13:45J-1.3. [5] N.J.A.C. § 13:45J-1.2. [6] N.J.A.C. § 13:45J-1.2 (defining “Modest Meal”). [7] N.J.A.C. § 13:45J-1.4. [8] N.J.A.C. § 13:45J-1.5. [9] N.J.A.C. § 13:45J-1.6. [10] N.J.A.C. § 13:45J-1.6. [11] N.J.A.C. § 13:45J-1.2 (defining “Research” as “ any study assessing the safety or efficacy of prescribed products administered alone or in combination with other prescribed products or other therapies, or assessing the relative safety or efficacy of prescribed products in comparison with other prescribed products or other therapies, or any systemic investigation, including scientific advising on the development, testing, and evaluation, that is designed to develop or contribute to general knowledge, or reasonably can be considered to be of significant interest or value to scientists or prescribers working in a particular field. "Research" shall include both pre-market and post-market activities that satisfy the requirements of this definition.”).   [12] N.J.A.C. § 13:45J-1.2 (defining “Bona Fide Services”). [13] N.J.A.C. § 13:45J-1.7. [14] N.J.A.C. § 13:45J-1.8.

On October 2, the Veterans Administration (VA) proposed a new rule that would expand access to quality care and availability of mental health, specialty, and general clinical care for VA beneficiaries through the use of telemedicine. In their proposed rule, the VA explains the difficulty it has faced attracting a sufficient number of providers to furnish telemedicine services because state professional licensure laws restrict telehealth activities to within state borders. Providers fear discipline from those states for the unlicensed practice of medicine for treating veteran beneficiaries outside of the state in which they are licensed. In addition, in the current telehealth program, many VA medical centers only allow telehealth on federal property out of concern regarding these state limitations, which has hindered the telehealth program from expanding and reaching beneficiaries who need treatment but are not on federal property (e.g., those who are in their homes). The proposed rule aims to address these issues by permitting all VA physicians to treat patients via telehealth across state lines, regardless of where they’re licensed. This federal law would preempt state restrictions on licensure and telehealth, as most states currently restrict providers (including VA clinicians) from treating patients located in that state if the provider is not licensed there. Relaxing these requirements will encourage greater provider participation in the VA’s telemedicine program. In addition, these new rules would allow veterans, from their home, to use a mobile app, called VA Video Connect, to connect with their healthcare providers and conduct a home videoconferencing session. The proposed rule explains that eliminating veteran suicide and providing access to mental health care is the VA’s “number one priority” and this proposed rule would improve the VA’s ability to reach some of its most vulnerable beneficiaries. The commentary in the rule explains that telehealth “empowers beneficiaries to take a more active role in their overall health” and that the program is “particularly important for beneficiaries with limited mobility, or for whom travel to a health care provider would be a personal hardship.” Rural connectivity, decreasing wait times for veterans, improving access to mental health services, and an overall increase in access to care is the driving force behind these efforts. In fiscal year 2016, VA practitioners saw 702,000 patients via telemedicine in 2.17 million episodes of care. Almost half of those who received telemedicine care were in rural areas. The VA has already seen improved patient care as a result of the VA’s expansion of telemedicine services. For example, the VA reports there was a 31 percent decrease in VA hospital admissions for beneficiaries enrolled in the VA telehealth monitoring program for non-institutional care and chronic care management. Additionally, the VA reports a 39 percent reduction in the number of acute psychiatric VA bed days of care. The commentary states, “This rule would ensure that VA health care providers provide the same level of care to all beneficiaries, irrespective of the State or location in a State of the VA health care provider or the beneficiary.” The AMA supports this proposed rule. In its statement supporting the proposed rule, the AMA emphasized that the rule is narrowly tailored to only apply the multi-state licensure pre-emption to VA-employed providers who are directly controlled and supervised by the VA, and does not cover contracted physicians or providers who are not directly controlled and supervised. Those interested in providing feedback can submit written comments until November 1, 2017.

The Cybersecurity Act of 2015 established the Health Care Industry Cybersecurity Task Force to respond to severe cyber-attacks within the rapidly-expanding information technology (“IT”) aspect of health care. Section 405(c) of the Act required the Task Force to research and develop a report summarizing the vulnerabilities in health care IT. On June 2nd, 2017, the Task Force released its Report on Improving Cybersecurity in the Health Care Industry. The Report is sobering, and finds that health care cybersecurity is in critical condition.  The Report outlines six recommendations to improve cybersecurity in the health care industry: Define and streamline leadership, governance, and expectations for health care industry cybersecurity. Increase the security and resilience of medical devices and health IT. Develop the health care workforce capacity necessary to prioritize and ensure cybersecurity awareness and technical capabilities. Increase health care industry readiness through improved cybersecurity awareness and education. Identify mechanisms to protect R&D efforts and intellectual property from attacks or exposure. Improve information sharing of industry threats, risks, and mitigations. These six recommendations recognize the need to assess cybersecurity at the industry level in order to better protect patient care and security. To use a cliché, health care cybersecurity will only be as strong as the weakest link in the industry. However, not every health care entity has similar resources. So, while the recommendations call for improvements and updates to guidance, regulations, and laws that affect health care cybersecurity, they do so in a way that recognizes the need for flexibility in the health care industry. For example, the first recommendation calls federal legislation “confusing” and “conflicting” and asks for a unified regulatory framework that untangles the current mess. In addition, the recommendations illustrate that the growing sophistication of health care IT demands a broader cybersecurity approach than previously required. The cybersecurity concern no longer rests with only protected health information at the provider level. Now, cybersecurity needs to branch out and include, for example, medical device developers. Improving patient care is clearly a central goal, and the Report speaks to that objective by highlighting problem areas with a direct connection to patient care outcomes. The Report also recognizes that the health care industry is a mosaic of large systems, private practices, payers, and developers where a one-size-fits-all approach is not conducive to progress. As such, this Report may trigger a cybersecurity-themed review of various regulatory areas that takes into account both patient care needs and variations in health care entity resources. Summer Associate Randall Hanson provided substantial assistance with the drafting of this blog post.

The FDA has called on the drugmaker Endo Pharmaceuticals to stop selling the opioid Opana ER. The press release on June 8th reflecting this announcement marks a novel approach from the FDA, as the agency for the first time has asked a company to remove a painkiller from the market based on the public health consequences of abuse. This opioid is an extended release version of Opana, and was first approved in 2006. As the nation increasingly faced an epidemic of opioid abuse and overdoses, the manufacturer reformulated the drug in 2012, adding a coating to the medication intended to make it harder to snort or inject the medicine. The FDA found that the product met the regulatory standards for approval, but declined to approve labeling describing the medication as having abuse deterrent properties because they found that the data did not show that the reformulation could be expected to meaningfully reduce abuse. Despite the 2012 reformulation, an increasing number of people abused this opioid by crushing, dissolving, and injecting it. In March of 2017, a panel of advisers to the FDA voted 19-8, with one abstention, that the drug’s benefits no longer outweighed the risks. Data showed that while nasal abuse fell, the rate of abuse through intravenous injection increased and the drug has been associated with outbreaks of HIV and hepatitis C, as well as a blood disorder thrombotic microangiopathy. In addition, Opana was considered at the center of an HIV outbreak in Indiana in 2015. The opioid epidemic in the United States has prompted several novel approaches to reducing abuse, often at the state level. State level responses, including prescription drug monitoring programs, declarations of a state of emergency, and limiting prescription lengths for opioids, are being implemented across the country, at the same time that lawmakers debate the future of the Affordable Care Act which has aimed millions of dollars within the Medicaid program towards addiction treatment and prevention, and expanded the scope of the Mental Health Parity Act. Ohio Attorney General Mike DeWine filed a lawsuit against five opioid manufacturers on May 31, including Endo, accusing them of misleading doctors and patients about the danger of addiction and overdose. Other states and cities have filed similar lawsuits. Ninety-one Americans die every day from opioid overdose according to the CDC. The FDA has stated that if the company resists removal of this opioid from the market, the agency intends to take formal steps to remove it by withdrawing approval. Endo in a response stated that the company is reviewing the request and evaluating potential options as they “determine the appropriate path to move forward.” This FDA action is a significant step in what will likely be a lengthy journey in which federal and state regulators (and private plaintiffs) use whatever legal authorities available to combat an increasingly damaging public health crisis.

Not relying on Congress to take action on the Affordable Care Act, the Centers for Medicare and Medicaid Services (“CMS”) has proposed new regulations intended to attract health insurance issuers back into ACA health insurance exchanges and stabilize the individual and small group insurance markets. On February 17, 2017 CMS proposed a set of modifications to regulations promulgated pursuant to The Patient Protection and Affordable Care Act (Pub. L. 111-148) and The Health Care and Education Reconciliation Act of 2010 (Pub. L. 111-152), collectively known as the “Affordable Care Act” or “ACA.” A primary goal of the proposals is to improve the insurance risk pool in the ACA exchanges, individual, and small group markets by promoting continuous health insurance coverage and reducing incentives for individuals to enroll in health insurance plans only when they require services. For example, the proposed rule would allow CMS to verify that individuals seeking to enroll in the Exchanges within a special enrollment period (i.e., outside of the annual open enrollment period) are eligible for special enrollment.   Current CMS policy allows individuals to self-attest that they meet special enrollment period eligibility requirements and enroll without further verification. The proposed rule would also reduce the annual Exchange open enrollment period for 2018 so that it begins November 1, 2017 and ends December 15, 2017 (current regulations have the 2018 plan year enrollment period lasting until January 1, 2018).   CMS states that the 15 day enrollment period reduction may have a positive impact on the Exchange risk pool by reducing the adverse impact of  enrolling individuals who learn they will need services in late December. Another proposal aimed at promoting continuous insurance coverage (rather than enrollment when services are needed) is to permit insurance issuers to attribute an individual’s premium payment for new coverage to any debt the individual owes for premium non-payment for coverage from the same issuer within the prior 12 months. The issuer would be permitted to deny enrollment for the new coverage and apply payment to the past debt.   Regulations at 45 C.F.R. § 147.104 state that issuers must guarantee availability of coverage to individuals and employers, and current interpretation of that regulation allows an individual to avoid premium payment for current coverage at the end of a plan year, yet obtain new coverage from the same issuer so long as one month’s premium is paid at the beginning of the plan year. CMS also proposes to increase the flexibility issuers have to design health plans that meet the Affordable Care Act’s required coverage level. Under the proposal, health plans that have an actuarial value ranging from -4 to + 2 percentage points from the required actuarial value of health coverage would be considered a de minimis variation, and would meet the individual and small group market standard.   Current regulations allow a variation of -2 to +2 percentage points. CMS proposes that the States review the adequacy of an issuer’s provider network, rather than requiring issuers to comply with CMS network adequacy guidance. Where a State does not have a sufficient network adequacy review process, CMS would rely on an issuer’s accreditation from the National Committee for Quality Assurance, URAC, or the Accreditation Association for Ambulatory Health Care as a network adequacy review. Lastly, the proposal would reduce by 10% the minimum percentage of Essential Community Providers (providers that serve predominantly low-income and medically underserved individuals) in a plan service area that an issuer must include in its network, and would allow greater flexibility to identify Essential Community Providers. Whether these proposals are finalized and are enough to attract health insurance issuers back to the Exchange marketplace remains to be seen.   And legislation to repeal or significantly modify the ACA could make the latest CMS proposals moot.  Nonetheless, CMS is not assuming the ACA Exchanges will disappear, and appears to be moving forward with efforts to stabilize the Exchanges and individual and small group markets. A copy of the proposed rule is available here: https://www.gpo.gov/fdsys/pkg/FR-2017-02-17/pdf/2017-03027.pdf

One of President Trump’s first actions in office was to sign an Executive Order stating that his Administration will seek to repeal the Affordable Care Act (the “Act”). In the meantime, President Trump directed the executive branch to take “all actions consistent with law to minimize the unwarranted economic and regulatory burdens of the Act, and prepare to afford the States more flexibility and control to create a more free and open healthcare market.”  The Order directs the Secretary of HHS and the heads of other executive departments and agencies with authority under the Act to have all “authority and discretion” to waive, defer, grant exemptions from or delay implementing any provisions of the Act that would impose a fiscal burden on a State, individual, health care provider, health insurer, medical device maker, etc.  The Order states that the heads of applicable departments and agencies shall encourage the free and open market to preserve maximum options for patients and consumers.  To the extent any rulemaking is needed to carry out the directives in the Order, the heads of agencies are directed to follow through with notice and comment rulemaking. The Executive Order regarding agency actions pending the Act’s repeal is in today’s federal register, and can be found here:  https://www.federalregister.gov/documents/2017/01/24/2017-01799/minimizing-the-economic-burden-of-the-patient-protection-and-affordable-care-act-pending-repeal.  There are a large number of regulations that could be impacted in a short time frame. It is unclear whether and what agency action would be taken at the present when there is not yet in place an alternative system to the Affordable Care Act.  Dorsey attorneys will be closely following the changes to the Affordable Care Act and will provide updates as developments unfold.

The 21St Century Cures Act, Pub. L. No. 114-255, 130 Stat. 1033, was signed into law on December 13, 2016.  This expansive statute addresses topics ranging from investigational drug clinical trial design, mental health program funding and insurance coverage, to a new Medicare benefit for home infusion therapy, among many others.  This post focuses on amendments to the Federal Food, Drug, and Cosmetic Act (“FDCA”) addressing FDA regulation of medical software. Section 3060 of the 21St Century Cures Act describes five types of medical software that are not to be considered a regulated medical device under the FDCA.    Perhaps most notably, this includes software intended to support or provide recommendations to a health care professional about prevention, diagnosis, or treatment of a disease or condition, or to display, analyze, or print medical information about a patient or other medical information  such as peer-reviewed clinical studies and clinical practice guidelines. However, to avoid regulation the software function must enable a health care professional to independently review the basis for the software’s recommendations, so that it is not intended that the health care professional rely primarily on the software’s recommendations to make a diagnosis or treatment decision about an individual patient. In addition, the software function must not be intended to acquire, process, or analyze a medical image or a signal from an in vitro diagnostic device or a pattern or signal from a signal acquisition system. This provision essentially ensures that FDA may not regulate many types of clinical practice support software as medical devices, so long as the software does not acquire or analyze medical images or in vitro device signals, and does not perform biomedical signal acquisition. The other four types of medical software excluded from the definition of a medical “device” are software intended: to transfer, store, convert, format, or display clinical diagnostic laboratory test results or other device data, findings by a health care professional regarding such data and results, and general information about those findings and background information about the tests and devices, so long as the software is not intended to interpret or analyze a laboratory test or device data, results, or findings; for administrative support of a health care facility (including processing claims and billing information, business analytics, population health management, lab workflow, cost-effectiveness and utilization analysis, and appointment scheduling); to maintain or encourage a healthy lifestyle, so long as the software is unrelated to the diagnosis, cure, mitigation, prevention, or treatment of a disease or condition; and to serve as an electronic patient record to the extent the electronic record is intended to transfer, store, convert formats, or display the equivalent of a paper medical record, and so long as: (a) the records were created, stored, transferred, or reviewed by a health care professional (or by those supervised by a health care professional); (b) the records are part of a certified health information technology; and (c) the software function is not intended to interpret or analyze patient records in order to diagnose, cure, mitigate, prevent, or treat a disease or condition. The medical software industry will welcome these provisions because they clear away ambiguity as to whether many types of clinical practice support software, EHR software, and other types of administrative software used in health care settings may be regulated as medical devices under the FDCA. As medical software continues to evolve and biomedical signal acquisition and similar features continue to integrate into administrative and clinical practice software, certainly  some software functions of more complex, multi-use software may be regulated under FDA’s  medical device authorities.   Moreover, medical software developers and producers must remain attentive to regulation affecting certain aspects of their products and product use (such as HIPAA and FTC privacy and security regulation).   But the 21st Century Cures Act undoubtedly brings greater certainty about the costs and ongoing regulatory burden associated with a wide variety of medical software.

On November 2, the Centers for Medicare & Medicaid Services (CMS) finalized the 2017 Medicare Physician Fee Schedule (PFS) rule. This rule, which takes effect on January 1, 2017, updates payment policies and rates for services furnished under the PFS.  A CMS fact sheet summarizing the major components of the rule is available here.  The rule included several updates to and clarifications regarding the federal physician self-referral law (or “Stark Law”), including: (1) unit-based compensation in arrangements for the rental of office space or equipment; (2) a technical correction; and (3) the annual update to CPT/HCPCS codes used to identify certain categories of Stark designated health services (or “DHS”).  These updates and clarifications are either routine or, in the case of unit-based compensation, ultimately resulted in no changes to the Stark regulations as currently implemented. Unit-Based Compensation. First, the PFS rule included a lengthy discussion of unit-based compensation in arrangements for the rental of office space or equipment (so-called “per-click” arrangements).  This discussion stemmed from an opinion issued by the D.C. Circuit on June 12, 2015 in Council for Urological Interests v. Burwell, 790 F.3d 212 (available here).  In this opinion, the D.C. Circuit concluded that CMS’s discussion of a 1993 House of Representatives conference report in the 2009 Inpatient Prospective Payment System (IPPS) final rule, which finalized regulations prohibiting certain per-unit of service compensation formulas in the rental of office space and equipment regulatory exceptions (found at 42 C.F.R. § 411.357(a)(5)(ii)(B) and (b)(4)(ii)(B), respectively), “contained an unreasonable interpretation of the conferees’ statements” concerning the rental of office space and rental of equipment statutory exceptions (found at 42 U.S.C. § 1395(e)(1)(A) and (e)(1)(B), respectively), and remanded the case to CMS “to permit a fuller consideration of the legislative history.” CMS responded to this directive in the final PFS rule. In the proposed 2017 PFS rule (available here), CMS used the same language in the existing exceptions for office space and equipment and proposed to include in each exception a requirement that, as previously implemented, rental charges for the lease of office space or equipment are not determined using a formula based on per-unit of service rental charges, to the extent that such charges reflect services provided to patients referred by the lessor to the lessee.  CMS also used the opportunity to re-propose the same language, as was previously implemented, banning per-click lease arrangements in the exceptions for fair market value compensation and indirect compensation arrangements (at 42 C.F.R. § 411.357(l)((3)(ii)) and (p)(1)(ii)(B), respectively).  In the final rule, CMS finalized these requirements without modification.  The net result is that the language in all four exceptions (for office space, equipment, fair market value compensation and indirect compensation arrangements) has remained unchanged.  Note that the relatively new exception for timeshare arrangements (at 42 C.F.R. § 411.357(y)(6)(ii)(B)), which was effective on January 1, 2016, includes a parallel ban on per-unit of service fees, with CMS using the same rationale for including it there. CMS rejected the position of the Council for Urological Interests that it lacked authority to impose a ban on per-click leases, and asserted that its reasoning in this final rule fully addressed the court’s concerns. As the D.C. Circuit stated, CMS emphasized that the Stark Law “does not unambiguously forbid the Secretary from banning per-click leases as she evaluates the needs of the Medicare system and its patients.”  CMS pointed out that the Stark Law gives it the authority to add requirements as needed to protect against program or patient abuse, explicitly permits it to impose additional conditions on arrangements for the rental of office space or equipment, and does not state that per-click rates must always be permitted.  CMS stated its belief, as first stated in the 2009 IPPS rule, that such a ban is necessary because per-click lease arrangements (where the lessor makes referrals to the lessee that generate payments to the lessor) create improper incentives for physicians to over-utilize services (by ordering unnecessary services that would not have been ordered absent a profit motive), may narrow the choice of treatment options of a patient and may increase costs to the Medicare program. Further, citing language from the opinion, CMS stated that “Congress knew how to cabin the Secretary’s authority to impose ‘other’ requirements” and “knew how to further clarify what it meant by compensation that does not take into account the volume of business generated between the parties” (as it did in the employment exception). Additionally, Congress knew how to permit per-click payments explicitly (as it did in the exception for continuation of certain group practice arrangements with a hospital).  The fact that Congress did not explicitly prohibit or permit per-click arrangements in the context of the exceptions for office space and equipment leases supports the position that the Stark Law is silent regarding the permissibility of per-click for equipment rentals.  Therefore, CMS has the authority to impose such a prohibition in order to protect against program or patient abuse. CMS emphasized that it does not absolutely prohibit rental charges based on units of service furnished. This is only prohibited “where the lessor generates the payment from the lessee through a referral to the lessee for a service to be provided in the rented office space or using the rented equipment.”  For this reason, per-unit of service rental charges are permitted, as long as the referral for those services did not come from the lessor. Technical Correction. Second, the rule included a technical correction regarding instructions for submitting a request for an advisory opinion related to physician referrals at 42 C.F.R. § 411.372(a).  This rule now provides that parties must submit such requests to CMS according to instructions specified on the CMS website.  Previously, this regulation specified that parties must submit such requests to CMS in writing.  However, the CMS website regarding advisory opinions (available here) has not been updated since March 2016 and does not include instructions for submitting an advisory opinion.  These instructions will likely be posted to this website in the near future. Code List Updates. Third, the rule included the annual update to the list of CPT/HCPCS codes used to identify certain categories of DHS (the “Code List”).  As specified in the Stark Law regulations at 42 C.F.R. § 411.351, the following four categories of DHS are defined by reference to the Code List: (1) clinical laboratory services; (2) physical therapy, occupational therapy, and outpatient speech-language pathology services; (3) radiology and certain other imaging services; and (4) radiation therapy services and supplies.  The Code List is updated annually to reflect changes in the most recent CPT and HCPCS Level II publications.  Further, items and services that may qualify for either of two Stark Law exceptions—the exception for preventive screening tests, immunizations and vaccines at 42 C.F.R. § 411.355(h) and the exception for EPO and other dialysis-related drugs at 42 C.F.R. § 411.355(g)—are identified by reference to the Code List.  The Code List included the annual updates to the codes eligible for the preventive screening tests, immunizations and vaccines exception.  However, as in previous years, the Code List does not include any codes eligible for the EPO and other dialysis-related drugs exception (for reasons explained by CMS in the rule).  The PFS rule includes tables showing the additions and deletions to the Code List.  We expect that, as per usual, the complete list will be posted before the end of the year to the CMS website dedicated to the Code List, found here. The advanced copy of the PFS rule is available here.  The official version of the rule is scheduled for publication in the Federal Register on November 15, 2016.