AHLA. February 2014 Volume 18 Issue 2. For the health and life sciences law community TOP

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1 AHLA February 2014 Volume 18 Issue 2 TOP For the health and life sciences law community Top Ten Health Law Issues 2014 (page 14) Health Reform & Antitrust Enforcement (page 28) Review of 2013 Stark Law Decisions (page 42) HHS Limits AKS for Marketplaces (page 50) OFFICIAL MAGAZINE OF AMERICAN HEALTH LAW YERS ASSOCIATION

2 Analysis Exchange Health Plans Are Not Considered Federal Health Care Programs? HHS Limits the Anti-Kickback Statute By Edward D. Rickert, Krieg DeVault LLP, Chicago, IL; Robert A. Wade, and Alex T. Krouse, Krieg DeVault LLP, Mishawaka, IN The Anti-Kickback Statute (AKS) is one of the primary tools for the federal government to recover federal health care program dollars. For example, one of the largest pharmaceutical industry settlements to date occurred in 2004 when Schering Sales Corporation settled with the U.S. government for $345 million due to alleged violations under the AKS and False Claims Act (FCA). 1 In 2012, Sanofi-Aventis U.S. Inc., and Sanofi-Aventis U.S., LLC, subsidiaries of Sanofi, agreed to pay $109 million to resolve allegations that Sanofi violated the FCA and AKS. 2 Even more recently, Omnicare, a large pharmacy specializing in nursing home patient medications, agreed to pay $120 million for alleged AKS violations. 3 These types of settlements with pharmaceutical companies have increased; however, other health care industry organizations also have felt the teeth of the AKS in more recent years. In early 2013, Cooper Health System in New Jersey agreed to pay $12.6 million to settle allegations that included possible violations of the AKS. 4 Even though the federal government has established a pattern of vigorously pursuing organizations that allegedly violate the AKS, a recent letter to Representative Jim McDermott (D-WA) from Department of Health and Human Services (HHS) Secretary Kathleen Sebelius rendered this enforcement mechanism without teeth with respect to the Affordable Care Act s (ACA s) new health insurance marketplaces. 5 In the letter, Sebelius wrote that [t]he Department of Health and Human Services does not consider [Qualified Health Plans], other programs related to the Federally-facilitated Marketplace, and other programs under Title I of the Affordable Care Act to be federal health care programs. 6 Sebelius explained that this includes both state and federal marketplaces, cost-sharing reductions, advance payments of the premium tax credit, Navigators and other federally funded consumer assistance programs, consumer-oriented and operated health insurance plans, and risk adjustment, reinsurance, and risks corridors programs. 7 Sebelius said the conclusion was reached in consultation with the Department of Justice. Federal health care programs are defined as any plan or program that provides health benefits, whether directly, through insurance, or otherwise, which is funded directly, in whole or in part, by the United States Government... or any State health care program Under the AKS, if a person or organization receives, pays, offers, or solicits anything of value for the purpose of inducing or rewarding the referral of federal health care programs business, then that individual or entity is subject to exclusion, fines, and possible imprisonment. 9 Unfortunately, Secretary Sebelius letter provides little insight into the analysis of the significant decision that marketplaces and other ACA-related programs are not federal health care programs for purposes of the AKS. Practical Implications The decision that the AKS does not apply to health insurance marketplaces changes the game with respect to enrollee assistance. On one hand, hospitals and pharmaceutical manufacturers may have the green light to assist patients in obtaining coverage, in turn receiving reimbursement for subsequently rendered care or increased use of their products. However, other industries such as pharmacy benefit managers and generic drug manufacturers may have concerns that utilization might shift to branded drugs when otherwise effective generic drugs are available. HHS also appears to be concerned that third-party subsidies pose a risk for the marketplaces. After the HHS letter, the Center for Consumer Information & Insurance Oversight (CCIIO), a division of the Centers for Medicare & Medicaid Services (CMS), issued a document discouraging third parties from making premium payments to health issuers on behalf of enrolled individuals. 10 The different operational implications of these recent pronouncements for hospitals and drug manufacturers are discussed further below. Hospitals and Provider Organizations In many instances, a patient may present to the emergency room with critical medical issues. Under the Emergency Medical Treatment and Labor Act, a hospital must provide stabilization treatment even if the patient is unable to pay. The hospital is then responsible for bearing the cost of such treatment if the patient is not insured. Given the assertion that the AKS does not apply to health care marketplace programs, a hospital could pay the premium for that individual s coverage and then seek reimbursement for care without raising the specter of an AKS violation. At the same time, hospitals and provider organizations should understand that they cannot simply purchase coverage for an individual who is currently seeking care. These organizations would have to develop a mechanism for assessing the uninsured population in their communities, supporting those individuals in signing up for health insurance, and coordinating care for those individuals thereafter. The key is that an individual s coverage does not begin instantaneously. 50 AHLA Connections February 2014

3 Many hospital systems and provider organizations are positioning themselves as community outreach organizations for helping individuals sign up for insurance coverage. According to CMS, numerous hospital systems and provider organizations have been awarded grants to fund Navigator programs. CMS states that [n]avigators will serve as an in-person resource for Americans who want additional assistance in shopping for and enrolling in plans in the Health Insurance Marketplace. 11 These grants will assist these organizations in developing outreach programs and hiring individuals to assist members of their respective communities in signing up for health insurance coverage. For example, Ascension Health, the largest catholic health system in the United States, received nearly $400,000 in Navigator grants. 12 Advanced Patient Advocacy, LLC in Florida, formed by Holy Cross Hospital and Bethesda Memorial Hospital, also received over $400,000 in grants. 13 Grants for community health centers and behavioral health centers were much larger. Both the East Texas Behavioral Healthcare Network and the Arizona Association of Community Health Centers received more than $1.3 million. 14 With this financial support and HHS stated position regarding AKS enforcement, it would appear that hospitals, provider organizations, and professional associations now may not only provide patients care, but also financially assist them in attaining coverage. Practically speaking, these changes provide an incentive for organizations to assist patients in seeking coverage and arguably allow organizations to deliver more care. Nevertheless, there are additional concerns that hospital systems and provider organizations should be aware of before undertaking a program to assist patients in obtaining coverage such as conflicts-of-interest requirements and the CCIIO Frequently Asked Question (FAQ) document recently issued. Conflicts of Interest Both the federally facilitated and state-based insurance marketplaces have stringent conflicts-of-interest rules. If a hospital or provider organization chooses to use Navigators, those organizations must strictly adhere to these rules. The final rule on the Navigator program explains that [a]ll Navigator entities must submit to the Exchange a written plan to remain free of conflicts of interest during the term as a Navigator. 15 In Indiana, Navigators must disclose actual or potential conflicts of interest during the application process and when assisting consumers. 16 Depending on the specific state, any violations of these conflicts-of-interest policies may result in civil penalties. 17 HHS Back Peddles on Hospital Subsidies Soon after the HHS letter, the CCIIO FAQ issued on November 4, 2013 explained that [i]t has been suggested that hospitals... may be considering supporting premium payments... [and that] HHS has significant concerns with this practice because Unfortunately, Secretary Sebelius letter provides little insight into the analysis of the significant decision that marketplaces and other ACA-related programs are not federal health care programs for purposes of the AKS. it could skew the insurance risk pool and create an unlevel field in the Marketplaces. 18 Above all, the FAQ stated that HHS discourages such practice, 19 creating a multitude of issues for hospitals and provider organizations. For example, hospitals may have to reduce costs and resources that have been commited to assisting the uninsured. The FAQ also arguably is at odds with the purpose of the Affordable Care Act to expand the availability of affordable insurance coverage to individuals. Drug Manufacturers The HHS determination also has implications for drug manufacturers regarding copayment coupon programs, which many individuals use to defray their prescription drug costs. Under a copayment coupon program, an individual receives a copay card that can be used when purchasing prescription drugs. When the individual presents the card at the pharmacy, the copay is reduced and the individual s insurance company normally covers the remaining cost of the prescription drug. Drug manufacturers use such programs to compete with generic drugs and to increase patient adherence to drugs for which they have been prescribed. For example, if a brand name drug s copay amount is $30 and the generic is $5, the copay coupon would subsidize the amount of the copay to bring the consumer cost in line with the generic copay costs. The use of copay coupons is impermissible in federal health care programs under the AKS. The reasoning is that the subsidy or copay coupon paid for by the drug manufacturer is a payment to use the drug manufacturer s product. The only exception for these programs thus far relates to programs based on financial hardship. 20 In Advisory Opinion No. 03-3, the HHS Office of Inspector General (OIG) expressly prohibited the use of copayment coupon programs. 21 The OIG explained that the drug manufacturer would be paying beneficiaries who use its product... [and this arrangement] healthlawyers.org 51

4 Analysis is squarely prohibited by the [AKS]. 22 One solution the OIG recommended would be for the manufacturer to provide free drugs to financially needy beneficiaries, so long as no federal health care program is billed for all or part of the drugs. 23 With the recent HHS pronouncement, it appears copayment coupon programs would be permissible for individuals signing up for health insurance through the marketplaces, which in turn would allow drug manufacturers to further market their products to those individuals. Generic drug manufacturers, which have long benefited from the AKS prohibition, likely will be unhappy with this result. And the question still stands, however, whether HHS even has the authority to determine QHPs are not federal health care programs. QHPs Are Not Federal Health Care Programs? Although Secretary Sebelius stated the federal government does not view QHPs as federal health care programs for the purpose of the AKS, her letter included little analysis to support this conclusion. In fact, the letter merely stated the opinion that the AKS would not apply because QHPs are not deemed to be federal health care programs. However, it is important to understand how HHS may have reached this significant opinion. QHPs are plans available through the health insurance marketplaces. Under a QHP, an individual will purchase a plan and may receive a refundable tax credit when the individual s taxes are filed. 24 This tax credit alone would not constitute funding for an insurance plan and thus is unlikely to qualify a QHP as a federal health care program. In other words, there is no direct federal funding going to purchase the health insurance. However, QHPs also may include cost-sharing reductions, which are subsidies that lower the amount of an individual s out-of-pocket expenses. 25 According to the ACA regarding cost sharing for QHPs, an issuer of a qualified health plan making reductions... shall notify the Secretary of such reductions and the Secretary shall make periodic and timely payments to the issuer equal to the value of the reductions. 26 These-cost sharing subsidies only apply to individuals enrolled in a silver plan. With respect to these cost-sharing subsidies, QHPs arguably may be federal health care programs under the federal definition. The arguments both for and against QHPs being federal health care programs are compelling and warrant further analysis by HHS. For the time being, however, it seems that drug manufacturers may offer copayment coupon programs while hospitals and other provider organizations are discouraged from subsidizing the cost of premiums for QHPs. Again, the question of whether HHS has the authority to restrict the AKS in this way remains at issue. Given the seemingly straightforward definition of a federal health care program, the agency s interpretation could be subject to challenge. Under the Chevron standard, courts normally give deference to agency interpretations unless they conflict with the plain meaning of the applicable statute. The arguments both for and against QHPs being federal health care programs are compelling and warrant further analysis by HHS. Finally, given that the AKS is a criminal statute, it appears the Department of Justice would ultimately have jurisdiction over the issue and would need to issue an opinion. As to the CCIIO FAQ, an American Hospital Association Legal Advisory noted HHS first would have to go through the rulemaking process to enforce a restriction on a hospital s ability to subsidize premiums. 27 And even though drug manufacturers seem to have been given the green light with respect to coupon programs, it appears there is a potential argument that HHS does not have the authority to nullify the AKS. Based upon the conflicting statements, both drug manufacturers and hospitals should consider the potential risks of offering coupons or insurance subsidies before going forward. At this point, it appears drug manufacturers should proceed cautiously with coupon programs while hospitals have no choice but to wait for further guidance from the Department of Justice. About the Authors Edward Rickert (erickert@kdlegal.com) is a partner in the Chicago, IL, office of Krieg DeVault LLP. As a pharmacist and attorney, he focuses his practice in the representation of pharmacies, pharmacists, drug manufacturers, physicians, long term care providers, and other health care providers in a variety of matters. He is currently Chair of the Pharmacy and Pharmaceutical Law Practice Group. Robert Wade (rwade@kdlegal.com) is a partner in the Mishawaka, IN, office of Krieg DeVault LLP. He is the Chair of the firm s Health Care Practice Group. He concentrates his practice in representing health care clients, including large health systems, hospitals, ambulatory surgical centers, physician groups, physicians, and other medical providers. His expertise includes representing clients with respect to the Stark Act, Anti-Kickback Statute, False Claims Act, and Emergency Medical Treatment and Active Labor Act. 52 AHLA Connections February 2014

5 Alex Krouse is an associate in the Mishawaka, IN, office of Krieg DeVault LLP. He regularly assists health care organizations, including health systems, hospitals, health care providers, and other business entities on corporate, transactional, and regulatory issues. He is a member of the firm s Health Care Practice Group. Endnotes 1 Schering-Plough to Pay $345 Million to Resolve Criminal and Civil Liabilities for Illegal Marketing of Claritin, U.S. Department of Justice, July 30, 2004, available at 2 Sanofi Agrees to Pay $109 Million to Resolve Allegations that It Gave Free Drug as Kickbacks to Physicians, U.S. Department of Justice, Dec. 19, 2012, available at SanofiPR.html. 3 See Omnicare, Inc. U.S. Securities and Exchange Commission Filings, Form 10-Q, Oct. 23, 2013, available at zhtml?c=65516&p=irol-sectext&text=ahr0cdovl2fwas50zw5rd2l6yx JkLmNvbS9maWxpbmcueG1sP2lwYWdlPTkxODQyNDMmRFNFUT0wJlN- FUT0wJlNRREVTQz1TRUNUSU9OX0VOVElSRSZzdWJzaWQ9NTc%3d. 4 Major New Jersey Hospital Pays $12.5 Million to Resolve Kickback Allegations, United States Department of Justice, Jan. 24, 2013, available at 5 Letter to U.S. Representative Jim McDermott, Health and Human Services Secretary Kathleen Sebelius, Oct. 30, 2013, available at house.gov/images/the%20honorable%20jim%20mcdermott.pdf. 6 Id. 7 Id U.S.C. 1320a-7b(f) U.S.C. 1320a-7b. 10 Third Party Payments of Premiums for Qualified Health Plans in the Marketplaces, Department of Health and Human Services Center for Consumer Information & Insurance Oversight, Nov. 4, Navigator Grant Recipients, Centers for Medicare & Medicaid Services, available at Insurance-Marketplaces/Downloads/navigator-list pdf. 12 Id. 13 Id. 14 Id Fed. Reg , (July 17, 2013). 16 Indiana Navigator FAQs, Indiana Department of Insurance, Aug. 15, 2013, available at 17 See, e.g., Ind. Code , Indiana allows the Commissioner of the Department of Insurance to levy civil penalties for such violations. 18 Third Party Payments of Premiums for Qualified Health Plans in the Marketplaces, Department of Health and Human Services Center for Consumer Information & Insurance Oversight, Nov. 4, Id. 20 OIG Advisory Opinion No. 02-1, Department of Health & Human Services Office of Inspector General, Apr. 4, 2002, available at fraud/docs/advisoryopinions/2002/0201.pdf. 21 OIG Advisory Opinion No. 03-3, Department of Health & Human Services Office of Inspector General, Feb. 3, 2003, available at fraud/docs/advisoryopinions/2003/ao0303.pdf. 22 Id. 23 Id U.S.C. 36B U.S.C U.S.C (C)(3)(A). 27 HHS Encourages Insurers to Reject Hospital Subsidies for Patients in Need, American Hospital Association, Nov. 13, AHLA Women s Leadership Council Call for Leaders AHLA s Board of Directors recently formalized the creation of the Women s Leadership Council, to help guide the activities of the Association s new Women s Network. The Women s Leadership Council will coordinate activities and collaborate with other AHLA groups to provide networking and professional development opportunities, skills enhancement, and increased access to colleagues and AHLA leaders, and also strengthen ties to and involvement in the Association. Up to eight members will be selected to serve on the Council, and will be eligible for re-appointment two additional times. The first meeting of the Council will be in New York during AHLA s 2014 Annual Meeting. Interested in serving on the Council? Complete and submit the Call for Leaders form on the next page of this issue or go to Send to Kerry Hoggard at khoggard@healthlawyers.org or by fax at (202) by April 18, The AHLA s Women s Network was proposed in 2012 by AHLA members Elizabeth Carder-Thompson, Vicki Robinson, Julie Kass, and Laura Laemmle-Weidenfeld, and has already sponsored several successful events and initiatives, including: Series of interviews with women members, appearing in AHLA Connections magazine (Sept. and Dec. 2013, also Mar. and June 2014) (co-sponsored with Young Professionals Council) Breakfast Panels at several AHLA in-person programs on topics such as Professional Development for Minorities and Women in Health Law and Career Challenges and Opportunities Informal networking lunches and dinners at in-person programs Co-Sponsor of Brown Bag series on career issues for Students and Young Professionals Don t miss the upcoming Brown Bag webinar, Managing Expectations and Workplace Culture: Frank Conversations for Young Professionals on March 12. Go to www. healthlawyers.org/yp to register. healthlawyers.org 53