United States: Healthcare Law Update: March 2017

Nathan Adam IV is a Partner in the Tallahassee office

Matthew Goldfarb is an Associate in the Chicago office

Courtney Groh and David Glynn are Partners and Andrew Namkung and Ilenna Stein are Associates in the Boston office


OIG Issues Advisory Opinion Allowing Free or Reduced-Cost Lodging and Meals

By Courtney Groh and Andrew Namkung

On March 3, 2017, the U.S. Department of Health and Human Services' (HHS) Office of Inspector General (OIG) issued Advisory Opinion 17-01 (Opinion) allowing an academic medical center's (Requestor's) proposal to provide free or reduced-cost lodging and meals to qualifying financially needy patients (Program). The Opinion is the first advisory opinion to expound upon the so-called "Promotes Access to Care" exception (Exception) under the OIG's Dec. 7, 2017, Final Rule.

Specifically, the Requestor proposed to provide up to three nights of free or reduced-cost hotel lodging and a hospital cafeteria meal allowance for patients who satisfy the following criteria: 1) the patient resides more than 90 miles from the hospital in a medically underserved or health professional shortage area; 2) the patient's household income does not exceed 500 percent of the federal poverty level; and 3) the patient's hospital appointment is before 10:00 a.m. and/or the patient has a follow-up appointment within 48 hours of an initial treatment. The Requester stated that it would not advertise the Program and would pay the vendor (e.g., the hotel) directly.

Applying a two-prong test, the OIG determined, first, that the Program would promote access to care through the removal of socioeconomic and geographic barriers that could prevent patients from receiving treatment. Second, the OIG concluded that the Program posed a low risk of harm to patients and federal healthcare programs for the following reasons: 1) the Program is unlikely to interfere with clinical decision-making, as eligibility for the Program is not dependent on the receipt of any particular service and clinicians are not compensated for referring patients to the hospital; 2) there is no risk of increased federal costs (e.g., overutilization), as the arrangement is not advertised and patients are only selected after the treatment is scheduled; and 3) the arrangement does not raise patient safety or quality-of-care concerns, and instead is intended to remove obstacles preventing patients from obtaining necessary treatment.

The OIG also recognized that the arrangement would implicate the Anti-Kickback Statute (AKS). Although the civil monetary penalty (CMP) exceptions do not apply to the AKS, the OIG concluded that, based on the same factors cited in the analysis of the Exception, the Requestor would not be subject to administrative sanctions under the AKS in connection with the arrangement.


Anthem-Cigna Merger Blocked Due to Antitrust Concerns

By Matthew Goldfarb

In United States v. Anthem, Inc., No. 16-1493, 2017 WL 685563 (D. DC. Feb. 21, 2017), the U.S. District Court for the District of Columbia issued an order blocking the proposed merger between Anthem and Cigna. The court held that the U.S. Department of Justice, 11 states and the District of Columbia (together, the Plaintiffs), met their burden of showing that the effect of the merger "may be to substantially lessen competition in the market for sales to national accounts [defined as 'customers with more than 5,000 employees, usually spread over at least two states']." In concluding that the merger would violate federal antitrust laws, the court held that the market for the sale of health insurance to national accounts is a "properly drawn market for purposes of antitrust laws, and that the fourteen states in which Anthem enjoys the exclusive right to compete under the Blue Cross Blue Shield banner, compromise a relevant geographic market for the product." Next, the court held that "plaintiffs established that the high level of concentration in the national accounts market that would result from the merger is "presumptively unlawful under the U.S. Department of Justice and Federal Trade Commission Horizontal Merger Guidelines" and that the merger is likely to have other anticompetitive effects, including: "eliminat[ion] of [Anthem and Cigna's] competition against each other for national accounts, reduc[tion] in the number of national carriers available to respond to solicitations in the future, and diminish[ing] of the prospects for innovation in the market." Anthem filed an Emergency Motion for Expedited Consideration of Appeal with the U.S. Court of Appeals for the District of Columbia Circuit, which was subsequently granted on Feb. 17, 2017.

Market Allocation Agreements Are Not Per Se Antitrust Violations

By Nathan Adams

In Procaps, S.A. v. Patheon, Inc., 845 F. 3d 1072 (11th Cir. 2016), the court of appeals affirmed final summary judgment in the defendant's favor on the grounds that the plaintiff failed to show concerted action as necessary to maintain a Sherman Act Section 1 claim or to adduce concrete evidence of actual anticompetitive effects under a rule of reason analysis. The parties to the lawsuit were joint venturers. Procaps, S.A. (Procaps) designs and manufactures gel capsules in Colombia for delivery of medications. Patheon, Inc. (Patheon) has longstanding relationships with American pharmaceutical companies and a strong marketing operation. In January 2012, the two decided to pool their attributes to create a new, more effective competitor in the American softgel market by entering into a collaboration agreement. In October 2012, Patheon informed Procaps of its planned acquisition of Banner Pharmacaps (Banner), an American designer and manufacturer of gel capsules. Procaps refused to participate in the collaboration any longer and sued Patheon for an antitrust violation. Procaps argued that the collaboration agreement, although lawful at its inception, was transformed into an illegal restraint of trade by Patheon's acquisition of Banner. The court of appeals disagreed on the grounds that Procaps never made a conscious commitment to a common scheme to illegally restrain trade under the collaboration agreement; rather, it quit participating in the agreement, so there was no concerted action under the agreement to restrain trade. The combination with Banner was wholly unilateral by Patheon. Procaps also argued that the court supply apply a per se rule and condemn the post-acquisition agreement as a horizontal market allocation agreement between competitors, but the court of appeals ruled that just because an agreement can be characterized as a market allocation agreement does not mean that the per se rule applies. Under the rule of reason analysis, Procaps failed to show any actual evidence of a reduction in output, increase in price or deterioration in quality.

Deceptive Trade Practices

New York Hospital States DTPA Claim against Insurer

By Nathan Adams

In Icahn Sch. of Med. At Mt. Sinai v. Health Care Serv. Corp., No. 16-cv-8756 (JSR), 2017 WL 635648 (S.D. N.Y. Feb. 15, 2017), the court granted an insurer's motion to dismiss a hospital's claim for negligent misrepresentation, but denied the motion as to the hospital's claims for violation of New York's deceptive business practice statute, GBL §349, and promissory estoppel. The hospital is "out-of-network" with respect to the insurer. The hospital claims that before treating Health Care Service Corp. (HCSC)-insured patients, it contacts the insurer to verify coverage and determine the methodology that the insurer will utilize to determine the amount that it will pay to the hospital. The hospital then allegedly transmits this information to the insured. The hospital filed suit against the insurer after six occasions in which the insurer allegedly told the hospital that it would reimburse the hospital using a particular rate, but ultimately paid significantly less. As to the deceptive trade practice claim, the insurer alleged that the hospital failed to show "consumer-oriented conduct" by the hospital or that the challenged acts or practices have a broader impact on consumers at large. Although acknowledging that the hospital is not itself a consumer, the court rejected the insurer's argument because the hospital transmitted the insurer's alleged misrepresentations to patients during pretreatment consultation so that they could make an informed decision whether to proceed with treatment. The court also disagreed with the insurer that the hospital failed to show a false representation or reasonable reliance as necessary to state a claim for promissory estoppel. But the court did find that the hospital failed to allege facts showing that the insurer had a duty, as a result of a special relationship, to give correct information to the hospital, as necessary to prove negligent misrepresentation.

Regulation and Legislation

OIG Encouraged to Develop New AKS Safe Harbors to Protect Value-Based Arrangements

By David Glynn and Ilenna Stein

The HHS OIG issued its annual solicitation for recommendations for new or modified AKS safe harbors on Dec. 28, 2016. The responses, which were due at the end of February 2017, included a number of proposals by industry groups and manufacturers to implement new safe harbors, or to revise existing ones, to protect so-called value-based or outcome-based pricing arrangements in the pharmaceutical and medical device supply chain. Value-based pricing involves linking payment for a drug or device to patient outcomes and cost-effectiveness, rather than pricing based solely on the volume of sales.

Early in 2016, CMS recognized that value-based pricing should play a role in future drug and device reimbursement when CMS issued its proposed rule on revisions to the Medicare Part B Drug Payment Model, including measures for implementing "value-based tools" to manage reimbursement costs. See 81 Fed. Reg. 13230 (March 11, 2016). Among these tools, CMS explored the use of outcome-based risk-sharing agreements that tie the final price of a drug to results achieved by specific patients in lieu of setting a predetermined price based on historical population data. Under the new approach, manufacturers would agree to provide rebates, refunds or price adjustments if the product does not meet targeted outcomes. Id. at 13244. But a question remains as to how, and whether, these types of arrangements can be structured to comply with federal fraud and abuse statutes, including the AKS, under which even typical volume-based discounting arrangements could technically draw scrutiny if they do not squarely fall within the discount safe harbor.

Commenters urged the OIG to promulgate new stand-alone safe harbors to protect value-based arrangements, so as to encourage, rather than thwart, their development. Moreover, commenters argued that value-based arrangements satisfy factors about which the OIG has historically been concerned, such as promoting access to and quality of care, lowering healthcare costs by aligning financial incentives and fostering competition between manufacturers to innovate the most efficacious products. Recognizing that value-based arrangements may not fit squarely within existing safe harbors, some commenters encouraged expanding existing safe harbors to protect value-based arrangements by, for example, modifying the discount safe harbor to protect arrangements in which a quality or outcome-based discount is offered on a bundle of items and services, or to protect discounts offered in connection with warranties or services provided under a personal or management services contract. They also encouraged the OIG to expand the warranty safe harbor, which currently may only protect product defects, rather than a product's failure to achieve a desired clinical outcome.

While an arrangement is not per se illegal if it does not strictly comply with the requirements of a safe harbor, not having safe harbor protection for value-based arrangements increases the legal and regulatory risk that manufacturers face, thereby limiting their willingness to enter into such arrangements. The industry responded to the OIG's solicitation with a clear and unified message that today's rapidly changing healthcare landscape warrants additional guidance and clarity around value-based arrangements.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.