United States: mHealth Stakeholders: Updated Bullet List Of Legal Considerations

You are a device maker, an app or software developer, a potential investor, a healthcare provider, a healthcare payor or an insurer and you see opportunities in mobile health (mHealth). You have an idea for a revolutionary gadget or software app, or you are looking for one to back. You see the future of healthcare moving from the inpatient bedside to the home kitchen, and you recognize the big opportunities in the area of mHealth. Perhaps your background is in software, rather than healthcare; or you understand healthcare, but are unfamiliar with software and device development. In developing your business plan, consider the following mHealth-specific legal issues.

Intellectual Property

Once a concept has been sufficiently developed to promote and disclose, it may die on the vine if intellectual property legal issues have not been appropriately addressed, such as patents, copyrights, trademarks and contracts. Briefly, consider that:

  • Patent rights are protected internationally by filing a first patent application to establish a priority date before the invention is publicly known. In the United States, an applicant has one year to file after a first public use, or after an offer of sale (whether public or not). Therefore, the applicant should research patentability using online data sources and file at least a provisional patent application with a complete description. The provisional patent application is not examined, but it protects the priority of the filing date until an applicant files a regular nonprovisional application (the deadline is one year). A legal glitch is that patentable subject-matter categories may exclude software-based business methods, diagnostic processes and some other developments, unless they are defined as including a special-purpose computing system or a method that transforms an item in the real world.
  • Copyright arises when a work such as software is fixed in a tangible medium. Copyright registration is only necessary before bringing suit for infringement, although there are benefits to registering promptly after publication. Unless the author is your employee (an author for hire), you need a written document assigning ownership. Consider negotiating agreements with independent-contractor software developers assigning sole ownership of the copyright to you, because otherwise, the developer will own the copyright. If you are unsuccessful in negotiating for ownership, it may be prudent to negotiate for exclusivity within your marketing niche.
  • Confidentiality agreements are often used to avoid a public disclosure and they permit a developer to talk to a potential licensee. Many companies routinely decline to promise confidentiality. Trade secret and know-how rights dissipate if and when the information is publicly disclosed. Departing employees are the likeliest future competitors. New hires should have obligations to assign inventions, to protect confidentiality and to refrain from competition for a time after leaving. Be aware of your confidentiality and noncompetition rights and obligations, which can arise whether you are on the disclosing end or the receiving end.
  • Trademark rights may carry practical exclusivity that can be useful even if patent protection is doubtful. If you become known in a market under a distinctive name or identifier, consumers will seek out your products and services over generic competitors.

Regulatory Issues

Healthcare is a highly regulated industry, and becoming familiar with specific agency regulations and guidance, along with the direction of enforcement, can be daunting and may require legal support. In the mHealth arena, the key agencies and guidance include:

  • FDA – The U.S. Food and Drug Administration (FDA) regulates "medical devices," and many devices are subject to the agency's rigorous clearance and approvals processes. In September 2013, the FDA expanded the definition of a "device" to include certain mobile apps (Guidance for Industry and Food and Drug Administration Staff – Mobile Medical Applications). Mobile medical apps that meet this definition are apps that are tied to a regulated device by controlling the device—for example, remote insulin monitoring—or that display data from the device. Regulated apps also include ones that transform a mobile platform into a regulated medical device, such as an electronic stethoscope. In the Guidance, the agency lays out fairly clear distinctions among mobile apps that FDA asserted: a) Are not medical devices at all and, thus, fall outside FDA's regime; b) Are – or may be – medical devices, but will be subject to FDA "enforcement discretion"; and c) Are medical devices that FDA will regulate. For instance, the FDA is not regulating apps that provide general information but may regulate apps that analyze information to provide to physicians for use in treatment. With the new Guidance, it is imperative that developers think about FDA oversight before testing and bringing a product to market. There is currently legislation before Congress to require the FDA to develop a risk-based regulatory framework for medical devices and health information technology. For more information, see http://www.duanemorris.com/alerts/mobile_medical_apps_guidance_5037.html.
  • FCC – The Federal Communications Commission (FCC) oversees every medical device that uses radio technology, falling within the Commission's authority to manage the electromagnetic spectrum.1 In 2010, the FDA and the FCC entered into a Memorandum of Understanding (MOU) "to promote collaboration and ultimately to improve the efficiency of the regulatory processes applicable to broadband and wireless enabled medical devices." On May 17, 2012, FCC Chairman Julius Genachowski announced a proposal to allocate wireless spectrum for medical body area network (MBAN) devices in hospitals, clinics and doctors' offices. The FCC is scheduled to consider the proposal at its May 24, 2012, meeting.
  • FTC – The Federal Trade Commission (FTC) is charged with regulating unfair or deceptive acts and practices, including false and misleading claims about a product or service. The FTC interprets its mandate broadly, and signals what it considers outside of acceptable bounds through enforcement actions. The agency is keenly aware of mHealth devices and apps. It sanctioned two device apps for claiming, without sufficient support, to treat acne through colored lights emitted from a device. It has also issued guidelines and brought enforcement actions pertaining to advertising, marketing, mobile apps, Internet and online privacy and security, and other areas that impact mHealth.
  • HHS – The U.S. Department of Health and Human Services (HHS) is one of the agencies that oversees the privacy and security aspects of mHealth, pursuant to its authority to enforce the Health Insurance Portability and Accountability Act (HIPAA). mHealth devices operated by providers and payors must ensure the privacy of personal data with exceptions that include when data is are shared for treatment purposes. HIPAA security standards impose requirements for the protection of electronically transmitted personal data. Some years ago, HHS issued a statement on remote-access usages involving electronic personal health information. The statement is dated, but it remains HHS's principal statement on how HIPAA and mobile devices fit together. It suggests a high standard for security protections on mobile devices. HHS's Office of the National Coordinator (ONC) is closely studying mobile app privacy and security issues, information networks and other issues related to mHealth. HHS established an mHealth Initiative and likely will be issuing updated guidance in this area.
  • States – Through regulatory agencies' enforcement powers and states' attorneys general, states are beginning to focus on mHealth and general mobile app issues. For instance, California Attorney General Kamala Harris entered into a Joint Statement of Principles with the six largest mobile-application companies—Amazon, Apple, Google, Hewlett-Packard, Microsoft and Research In Motion—regarding consumer privacy and transparency issues when data is are collected through their apps. The five principles established parameters for good practice, whether or not the app is healthcare related. Although not legally binding, Attorney General Harris pledges to renew compliance in the fall, and she may use California laws on privacy, false advertising, unfair business practices and others as enforcement tools. Since California often leads the way in privacy enforcement, it is likely that other states will follow suit.

Liability, Terms and Conditions, and Insurance

Any medical device could fail in its purpose, causing medical injury in the worst case. With mHealth, there is a risk that personal information and data integrity may be compromised. Liability issues become more complicated when subcontractors are involved. With these risks come many ways to protect against them. Good contracting with customers and vendors is essential. Appropriate use statements as well as terms and conditions should be distributed and executed. Perhaps most importantly, a good insurance policy should be in place, provided by a reputable insurer, covering new potential liabilities that may result from new apps or devices.

Insurance Coverage

With any new area of commerce, especially with medical devices where injury could result, it may be challenging to find an insurer that understands and will insure the risk. Specialty insurance brokers may be required to find such coverage. In some cases, the risks may not be insurable. Insurance issues usually arise while an agreement is being negotiated, but they should be a significant consideration of every business plan.

Indemnification

Allocation of performance risks associated with mHealth devices depends on the role of each stakeholder. Standard boilerplate language will not likely work in this instance. The interplay between the risks to be assumed by certain parties and the available insurance coverage to cover them should be analyzed, especially by investors whose money is at-risk. Many investors do not invest in medical devices because they do not understand the potential challenges. mHealth poses additional, complex risks that investors need to understand, particularly where parties agree to mutual indemnification. Rarely do the parties have the necessary insurance coverage or the sufficient underlying assets to honor the indemnity commitments to which they agree.

Representations and Warranties

With new mHealth devices and applications, some of the standard warranties may not necessarily be applicable, and companies may not want to warrant certain performance standards. These concerns should be carefully negotiated and drafted between investors, developers, users and suppliers. Device developers should know what the device is licensed to do and what it does not do, especially when treatment of any disease or condition is involved.

Healthcare Privacy Documents

A stakeholder should pay special attention to what, if any, patient information, protected under any federal and/or state laws, requires special documentation before that information can be shared. Under HIPAA, some vendors receiving protected health information will have to execute business associate agreements that must conform to the requirements of the law. In executing these agreements, new companies may benefit from legal assistance in understanding what is required to comply with privacy law.

Reimbursement

The success of many mHealth apps will be contingent on whether health insurance payors, including Medicare, Medicaid and commercial payors, will reimburse for the service provided. Payors are on the cusp of understanding, and paying for, mHealth apps. The future of mHealth will most likely involve devices that perform services that are currently paid for when the procedure is performed by a medical professional.

Many business models for mHealth applications will not rely on health insurance reimbursement. They will involve a user subscription fee and depend on advertising revenue to make the model work. Others, however, will be looking for health insurance reimbursement as part of their business model. While the process of getting a device, or a procedure using a device, covered by insurance can be challenging and time-consuming, it is essential. Opportunities may exist under some of the new and existing managed care models, such as Medicare Advantage, or Accountable Care Organizations. Larger established companies are familiar with this process and see it as a cost of doing business. Many startup companies, however, are reluctant to expend the time and resources to ensure coverage. This reluctance is self-defeating because startups are the companies most in need of financing to launch their businesses. It is, however, very difficult to obtain financing if a company cannot provide a reasonable estimate of its projected revenue stream. An estimate that will satisfy the stringent standards of most lenders is virtually impossible to prepare in advance since there are no established insurance rates for using an mHealth device.

Medicare and Medicaid reimbursement for outpatient services performed in a hospital has two components: the professional fee (physician charge) and the facility charge (overhead, cost of supplies, etc.). To the extent medical services, such as diagnostic services, are provided over a telecommunications device rather than a face-to-face encounter, issues arise involving place of service. If a cardiologist is monitoring a patient long-distance, in connection with his or her employment or other affiliation with a hospital, the hospital would normally claim a facility charge for outpatient hospital services. While the physical facilities of the hospital are not being utilized, someone paid for the device, the software and the connection. Similarly, the cardiologist is entitled to a professional fee, but the amount of reimbursement depends on whether the service was provided as an outpatient hospital visit or as an office visit. New reimbursement methods—including bundled payments and shared savings approaches—could make reimbursement more complex, even though many mHealth devices reduce labor costs.

There has, however, been very little guidance on the billing issues raised by mHealth from the Centers for Medicare and Medicaid Services (CMS), the agency within HHS that administers the Medicare and Medicaid programs. While CMS is increasingly paying for various telehealth services, such as telepsychiatry, many uses remain open or complex, such as how to credential physicians who are providing services through telehealth. This lack of guidance creates potential fraud and abuse issues.

Fraud and Abuse

Medicare and Medicaid will cover only those services and products that are "medically necessary." CMS could well conclude that remote monitoring is for the convenience of the physician rather than being medically necessary. Moreover, neither Medicare nor Medicaid will consider a drug or device to be medically necessary if the FDA has not approved it for marketing. Thus, medical necessity is an issue affecting both providers and device companies. While there is some overlap, other issues primarily affect either providers or device companies.

Providers

Many complex billing issues give rise to potential fraud and abuse issues. For example, physicians have been accused of fraud for billing for services when they are not physically present at the time the service is being rendered. An example is a physician at a teaching hospital who bills for supervising the intern or resident who actually provides the medical service or procedure. While at first blush a physician billing for a procedure when he or she is not physically present would appear to be obvious fraud, mHealth medical services are, almost by definition, performed by a physician who is not physically present.

In addition to the place-of-service issues mentioned earlier under reimbursement, the proper coding applicable to remote services raises complex issues that can lead to allegations of fraud. In the absence of guidance from CMS, the rationale utilized by a provider for using a given billing code or level of service should be reasoned and documented. The courts have held that a reasonable disagreement about proper billing is not fraud. While a good-faith and reasoned interpretation of the billing rules will not prevent an investigation or allegation of submitting false claims, it can be a strong defense.

Device Companies

Medical device companies face different types of fraud and abuse issues. There are inherent Anti-kickback and Stark (Physician Self-Referral) Law issues involved in the marketing, promotion and use of this type of technology. An example of a kickback scheme is an incentive program tied to sales of a device or a contract for service. Government agencies have taken action against both drug and device companies over such practices, and there has been a similar crackdown on "educational seminars," usually held at resorts, that concern the use of a drug or a device. It may be prudent to carefully structure medication reminders and information to providers in order to avoid potential kickback issues.

The Stark Law, generally speaking, prohibits the submission of claims for Medicare or Medicaid reimbursement for services performed at a facility to which a physician has referred a patient if that physician has an ownership interest in, or receives compensation from, the facility. This would likely apply to a physician with an ownership interest in a mobile medical device company.

Footnote

1.The Future of Wireless Medical Devices – FCC, FDA, and Patent Considerations, Bloomberg BNA Webinar (January 26, 2011).

Mitch Goldman focuses his practice on the finance and corporate aspects of healthcare delivery, with an emphasis on reimbursement, structuring corporate transactions between and among providers, advising clients on the impact of government regulation, and developing and financing startup healthcare-related companies.

Stephan P. Gribok focuses his practice on intellectual property law, including patent, trademark, copyright, unfair competition, with an emphasis in electronics and automatic control technologies. Mr. Gribok has assisted various clients on intellectual property issues related to healthcare products.

This article is for general information and does not include full legal analysis of the matters presented. It should not be construed or relied upon as legal advice or legal opinion on any specific facts or circumstances. The description of the results of any specific case or transaction contained herein does not mean or suggest that similar results can or could be obtained in any other matter. Each legal matter should be considered to be unique and subject to varying results. The invitation to contact the authors or attorneys in our firm is not a solicitation to provide professional services and should not be construed as a statement as to any availability to perform legal services in any jurisdiction in which such attorney is not permitted to practice.

Duane Morris LLP, a full-service law firm with more than 700 attorneys in 24 offices in the United States and internationally, offers innovative solutions to the legal and business challenges presented by today's evolving global markets. Duane Morris LLP, a full-service law firm with more than 700 attorneys in 24 offices in the United States and internationally, offers innovative solutions to the legal and business challenges presented by today's evolving global markets. The Duane Morris Institute provides training workshops for HR professionals, in-house counsel, benefits administrators and senior managers.

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