United States: Healthcare Regulatory Check-Up | February 2023

This issue of McDermott's Healthcare Regulatory Check-Up highlights significant regulatory activity for February 2023. We discuss several criminal and civil enforcement actions that involve Anti-Kickback Statute (AKS) and beneficiary inducement issues. We also highlight the recent Office of Inspector General (OIG) advisory opinions 23-01 and 23-02, as well as other notable developments, including the US Department of Justice (DOJ) False Claims Act (FCA) Report for FY 2022.

NOTABLE ENFORCEMENT RESOLUTIONS AND ACTIVITY

DURABLE MEDICAL EQUIPMENT SUPPLIER CONVICTED OF $3.8M HEALTHCARE FRAUD

The owner and the manager of a New York-based durable medical equipment supplier were convicted for engaging in a $3.8 million scheme to defraud Medicare Advantage and Medicaid managed care plans. The scheme involved billing for hundreds of patient support systems that were never provided to caregivers and patients. The plans were billed for expensive devices designed to lift immobile patients, but only recliner chairs with seat lift features were actually provided

FTC TAKES ENFORCEMENT ACTION UNDER HEALTH BREACH NOTIFICATION RULE FOR THE FIRST TIME

On February 1, 2023, the Federal Trade Commission announced its first-ever enforcement action under Health Breach Notification Rule against a telehealth and prescription drug discount provider for its failure to notify consumers of unauthorized disclosure of sensitive personal health information to third-party advertisers. The proposed order prohibits the company from engaging in deceptive practices described in the complaint and requires the company to abide by the Health Breach Notification Rule and pay a $1.5 million civil penalty.

TEACHING HOSPITAL, PHYSICIAN GROUP AND SURGEON SETTLE FCA ALLEGATIONS FOR $8.5M

On February 27, 2023, a teaching hospital, physician group and surgeon agreed to pay $8.5 million to settle FCA allegations in a qui tam lawsuit that they submitted false claims to federal healthcare programs by scheduling overlapping or concurrent surgeries in two interconnected operating suites along with a third surgery in a different room in violation of federal rules prohibiting teaching physicians from billing for concurrent surgeries. The concurrent surgery practice also allegedly resulted in the submission of false claims for medically unnecessary anesthesia time because patients were left sedated for longer than necessary while the surgeon attended to the other surgeries. As part of the settlement agreement, the defendants agreed to create a corrective action plan for the surgeon and to submit to a third-party audit of the surgeon's Medicare billings. In an unusual provision, the settlement agreement also permits the teaching hospital to request information, guidance, assurance and/or an advisory opinion from the Centers for Medicare & Medicaid Services (CMS) regarding Medicare regulations pertaining to the types of surgeries at issue in the case. IN THIS ISSUE NOTABLE ENFORCEMENT RESOLUTIONS AND ACTIVITY 1 OIG ADVISORY OPINIONS 2 OTHER NOTABLE DEVELOPMENTS 4 MWE.COM

FEDERAL JURY CONVICTS OPHTHALMOLOGY DISTRIBUTOR, OWNER FOR $43M KICKBACK SCHEME

On February 28, 2023, a federal jury returned a verdict in favor of the United States for more than $43 million in a civil FCA trial. The jury convicted a distributor of intraocular lenses and other products used in eye surgeries, along with the company's owner, of violating the AKS and FCA by providing free or discounted luxury trips, entertainment and frequent flyer miles to induce physicians to buy and use the products in surgeries, including surgeries paid for by Medicare.

OIG ADVISORY OPINION

ADVISORY OPINION 23-01, POSTED ON FEBRUARY 23, 2023

This favorable advisory opinion related to a request from a drug manufacturer producing a regenerative tissue-based therapy used for immune reconstitution in pediatric patients with a rare immunodeficiency disorder (the condition). The requestor proposed a patient assistance program in the form of the following:

• Round-trip medical flights for the patient diagnosed with the condition and up to two caregivers whom the patient would need on the flights
• Ground ambulance travel to and from the airport
• Modest lodging in a single hotel room with a private bathroom up to $150 per night, if charitable housing was not available
• Coverage for out-of-pocket expenses up to $50 per day for one caregiver (or $100 per day for two caregivers) to cover ground transportation and meals while staying near the treatment center that administers the requestor's drug.

Under the arrangement, a patient must have been diagnosed with the condition, must reside in the United States or a US territory, must live more than a two-hour drive away from the treatment center, and must satisfy the gross annual household income limits to demonstrate financial need.

OIG determined that the AKS is implicated because offering remuneration in the form of lodging, meals and transportation to patients, some of whom are federal healthcare program beneficiaries, may induce patients to purchase the drug and to receive other care at the treatment center. OIG noted that because patients receive assistance that facilitates their travel to and lodging near the treatment center, that assistance could also constitute remuneration to the treatment center and treating surgeon. OIG also determined that remuneration offered by a pharmaceutical manufacturer to a beneficiary that the manufacturer knows or should know is likely to influence the beneficiary to select a particular provider, practitioner or supplier, thus implicating the beneficiary inducements civil monetary penalty (CMP). Because the treatment center is a provider, the provision of remuneration under the arrangement potentially implicates the statute. However, for the reasons below, OIG concluded that the proposed arrangement presents a minimal risk of fraud and abuse under the AKS, and that for purposes of the beneficiary inducements CMP, the arrangement is not likely to influence a beneficiary to order the drug from the treatment center.

OIG ANALYSIS

OIG stated that although the arrangement constitutes remuneration and implicates the AKS, it poses sufficiently low risk of fraud and abuse under the AKS for the following reasons:

• Because the US Food and Drug Administration (FDA) has approved only one manufacturing site for the drug (on the campus of the treatment center) and the drug must be administered within a relatively short timeframe after manufacturing, patients are limited to one location for treatment. The arrangement facilitates safe access to the drug for a patient population that cannot travel long distances safely by car or other commercial means and lacks the financial resources to pay for medical transportation such as medical flights to the treatment center.
• The drug is a one-time, potentially curative treatment and is the only treatment option that could rebuild the immune system of a patient diagnosed with the condition. OIG noted that the arrangement is distinguishable from arrangements where a drug manufacturer provides remuneration to patients in connection with an initial dose of a drug to induce patients to continue purchasing the drug. The arrangement also is unlikely to increase program costs. Because the drug is the only potentially curative treatment, OIG assumed that many patients would attempt to obtain the treatment even in the absence of the arrangement. Furthermore, curing the disease would likely result in program savings and reduce the patient's economic burden caused by the disease.
• Because the condition is rare and the drug is not mass-produced, the risk for inappropriate utilization appears to be minimal. OIG also noted that because the condition affects so few children each year, it would be exceedingly rare that a doctor who practices at the treatment center would also be the diagnosing and prescribing doctor.
• Patients must meet the financial assistance criteria under the arrangement, which include having either no insurance coverage or insufficient insurance coverage for the services offered under the arrangement. Also, the requestor would not duplicate assistance. For example, the requestor would not cover lodging if the patient receives charitable coverage for lodging.
• The opportunity for the treatment center to earn more fees because of the requestors' remuneration to the patients is low risk under the AKS because, in addition to the reasons above, the drug's FDA approval requires patients to travel to the treatment center regardless of the arrangement.

OIG stated that although the arrangement constitutes remuneration and implicates the beneficiary inducement CMP, it poses sufficiently low risks. The limitations related to the manufacturing and distribution of the drug, rather than the remuneration offered under the arrangement, would likely influence a patient to select the treatment center for items and services for which payment may be made, in whole or in part, by Medicare or a state healthcare program.

ADVISORY OPINION 23-02, POSTED ON FEBRUARY 28, 2023

This favorable advisory opinion related to a request from a pharmaceutical company that acquired the only currently available enzyme replacement therapy drug in the United States indicated to treat a rare inherited genetic disorder (the condition). The requestor proposed a program to provide, via a specialty pharmacy that the requestor neither owns nor operates, a free 14-day supply of the drug to patients who experience insurance approval process delays.

Under the arrangement, a patient must be diagnosed with the condition, must have received a prescription but not been treated with the drug previously, must be insured and must have experienced an insurance coverage determination delay of at least 48 hours once the insurer received the required information. A patient is eligible to receive one 14-day refill if the patient is still awaiting a coverage determination or received a denial and is diligently pursuing appeal rights.

OIG determined that the AKS is implicated by offering remuneration in the form of the initial free 14-day supply plus the free 14-day refill to patients, some of whom are federal healthcare program beneficiaries, because doing so may induce patients to purchase the drug in the future. OIG determined that remuneration offered by a pharmaceutical manufacturer to a beneficiary that the manufacturer knows or should know is likely to influence the beneficiary to select a particular provider, practitioner or supplier and thus would implicate the beneficiary inducements CMP. Because the specialty pharmacy is a supplier, the provision of remuneration under the proposed arrangement potentially implicates the statute. However, for the reasons below, OIG concluded that the proposed arrangement would present a minimal risk of fraud and abuse under the AKS, and that for purposes of the beneficiary inducements CMP, the proposed arrangement is not likely to influence a beneficiary to purchase other federally reimbursable products from the specialty pharmacy in the future.

OIG ANALYSIS

OIG stated that although the arrangement constitutes remuneration and implicates the AKS, it poses sufficiently low risk of fraud and abuse under the AKS for the following reasons:

• The proposed arrangement is not likely to lead to overutilization of the drug because the drug's only FDA-approved indication is for treatment of the condition (which is very rare) and the arrangement is limited to patients who have been diagnosed with the condition by a licensed healthcare professional, have been prescribed the drug, have not previously been treated with the drug, and experience a delay in receiving a favorable coverage decision. In addition, a patient is eligible for no more than an initial 14-day supply and a 14-day refill of the drug because of the proposed arrangement's eligibility requirements. Patients who receive the drug under the proposed arrangement are subject to applicable cost-sharing amounts if insurance coverage is eventually approved.
• The proposed arrangement is not a problematic "seeding" program where a manufacturer provides a drug for free or at a reduced cost to induce patients to continue obtaining the drug that would be billed to federal healthcare programs. Because the arrangement is available only in the event of a delay in the insurance coverage determination process, patients and prescribers likely assume at the time the drug is prescribed that the patient's insurance will cover the drug and that the patient will be subject to applicable cost-sharing amounts. Thus, having the arrangement in place for those cases in which insurance approval decisions extend beyond 48 hours is unlikely to influence patients or prescribers to choose the drug over alternative therapies, particularly since the only current treatment alternative is a bone marrow transplant.
• Prescribers do not receive any financial benefits under the proposed arrangement because the drug is dispensed from the specialty pharmacy directly to patients, and physician do not bill for the drug or any administration fee.
• There is no cost to federal healthcare programs under the proposed arrangement because no patient, payor, pharmacy or other third party is billed for the administration or free supply of the drug.
• Although accepting the free drug under the proposed arrangement constitutes remuneration, it is sufficiently low risk because the arrangement does not require the patient to continue obtaining the drug or any item or service from the specialty pharmacy in the future.

OIG stated that although the arrangement constitutes remuneration and implicates the beneficiary inducement CMP, it poses sufficiently low risks because the specialty pharmacy is the only pharmacy that dispenses the drug and the possibility of receiving the initial free 14-day supply is not likely to influence future purchases of other federally reimbursable products from the specialty pharmacy.

OTHER NOTABLE DEVELOPMENTS

CMS RELEASES COVID-19 PHE OVERVIEW FACT SHEET

On February 27, 2023, CMS issued an overview fact sheet on CMS waivers and flexibilities to help the general public prepare for the expected end of the COVID-19 public health emergency on May 11, 2023. The fact sheet discusses several topics, including telehealth services; healthcare access; inpatient hospital care at home; and COVID-19 vaccines, testing and treatments.

DOJ ISSUES FY 2022 FCA REPORT

On February 7, 2023, the DOJ released its FY 2022 FCA Report. The report highlights the more than $2.2 billion won or negotiated by the federal government for FCA judgments and settlements. Of this amount, more than $1.7 billion involved the healthcare industry, including allegations involving Medicare Advantage, billing for unnecessary services and substandard care, drug pricing and kickbacks. During this same period, the government paid more than $488 million to relators. While the total recovery is among the lowest since 2009, the total dollar recovery is not a complete picture of FCA activity. The total number of cases is large. For FY 2022, the government and whistleblowers were parties to 351 judgments and settlements, which is the second-highest number in a single year. Also, whistleblowers filed 652 qui tam suits in FY 2022, 371 of which involved healthcare. The costs in terms of defense fees and personnel time and distraction can be significant even in cases that result in a relatively small settlement amount or a declination or dismissal. The scope of FCA activity in FY 2022 also touched many participants in healthcare, from managed care companies to manufacturers and providers. These matters include allegations of complex business relationships, such as physician hospital ownership buy-backs and other physician relationships. FCA actions are also expanding to COVID-19-related allegations. The pandemic resulted in unprecedented government spending and therefore will likely account for a growing portion of FCA investigations and settlements.

CMS REVISES VOLUNTARY SELF-REFERRAL DISCLOSURE PROTOCOL

On January 23, 2023, CMS released revisions to the Voluntary Self-Referral Disclosure Protocol (SRDP) (available here), which allows providers and suppliers to self-disclose actual or potential violations of the physician self-referral law (Stark Law). Disclosing parties must use the updated forms for disclosures submitted on or after March 1, 2023.

Although the changes to the SRDP are modest, they do allow disclosing parties to report certain types of Stark noncompliance in a more efficient manner. The updated SRDP includes a new Group Practice Information Form that allows physician practices only reporting noncompliance arising from the failure to qualify as a "group practice" under 42 C.F.R. § 411.352 to submit a single form to cover all physicians that made prohibited referrals rather than submitting a Physician Information Form for each physician. Disclosing parties also can now submit a single Physician Information Form and a list of all physicians deemed to have the same noncompliant compensation arrangement as the physician organization. Disclosing parties are no longer required to submit a hard copy of the certification statement with the submission. Instead, the complete disclosure can be submitted electronically

THIRD CIRCUIT RULES IN FAVOR OF DRUG MANUFACTURERS IN 340B CONTRACT PHARMACY CASE

On January 30, 2023, the US Court of Appeals for the Third Circuit issued a decisive win for drug manufacturers in Sanofi Aventis U.S. LLC v. United States Department of Health and Human Services. The Third Circuit held that the 340B drug pricing statute does not require the delivery of 340B drugs to an unlimited number of contract pharmacies, and that the 340B Administrative Dispute Resolution Rule, published in December 2020, was lawful. Read more about the Third Circuit decision here.

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