Over the past couple of years, FDA has introduced multiple programs allowing faster review of medical devices in order to get them to market more quickly. Some of the FDA’s efforts have been highly visible, such as the Breakthrough Devices program in the 21st Century Cures Act and the Software Precertification pilot program in the FDA’s Digital Health Innovation Action Plan. Others have been less trumpeted but are still significant developments for device manufacturers. This series of programs is consistent with FDA’s trend of making market entry for devices more efficient and reducing regulatory barriers for devices with low risk profiles and for devices that may be desperately needed by specific patient populations.
Faster 510(k) Review
On September 7, 2018, FDA unveiled the Quality in 510(k) (“Quik”) Review pilot program, which allows device manufacturers to submit premarket notifications electronically, as long as the device is classified under one of the specific product codes included in the pilot program (see the Quik Review webpage for the full list) and is not a combination product. FDA’s goal is to review 510(k) applications for devices that meet the eligibility requirements within 60 days, rather than the typical 90 days for traditional applications. While the inclusion of some of the device types in the pilot (e.g., eye cups and contact lens cases) is not surprising given their low-risk, FDA has also included some higher risk Class II devices, such as surgical lasers, certain endoscopic equipment, and certain imaging devices (e.g., MRIs and stationary X-rays). No doubt, FDA sees this pilot program as a potential opportunity to improve the entire 510(k) process, which will be a huge advantage for device manufacturers seeking expeditious review and commercialization.
Better Understanding of Uncertainty in Benefit-Risk Analyses
On September 6, 2018, FDA issued a draft guidance entitled Consideration of Uncertainty in Making Benefit-Risk Determinations in Medical Device Premarket Approvals, De Novo Classifications, and Humanitarian Device Exemptions, in which FDA discusses its approach to uncertainty in benefit-risk analyses supporting approval through PMA, de novo, and humanitarian device exemption pathways. While the draft guidance does not provide definitive criteria for “acceptable” uncertainty, FDA outlines the factors considered during review, such as the extent of the device’s benefits, risks, and the uncertainty involved, as well as the size of the potential patient population, the feasibility of substantial premarket studies, and the ability of postmarket data to resolve residual uncertainty. FDA’s device review process typically demands as much specificity as possible, so it is helpful when the Agency acknowledges that uncertainty is a factor and describes its approach for taking uncertainty into account.
The Private Payor Program
A recent FDA Voice post by Commissioner Gottlieb highlighted the Private Payor Program, a recently introduced CDRH initiative that is gaining momentum. In February 2016, FDA issued a request for expressions of interest from private payors about providing feedback to manufacturers on medical device clinical evidence generation and coverage as part of pre-submission meetings. To date, the following private payors and health technology assessment organizations have expressed interest and joined the program:
BlueCross BlueShield Association
CareFirst BlueCross BlueShield
Duke Evidence Synthesis Group
National Institute for Health and Care Excellence (NICE)
United Health Group
The Private Payor Program provides manufacturers a voluntary opportunity to have any of the participating organization attend a pre-submission meeting between the manufacturer and FDA to discuss clinical trial design and evidence gathering to support and facilitate future coverage determinations. Although most device manufacturers try to gather sufficient clinical evidence of safety and efficacy to support regulatory approval or clearance as well as coverage and reimbursement decisions, this program allows manufacturers to engage with payors early in the process instead of finding out that additional data is needed to obtain a positive coverage decision. It is also worth noting that device manufacturers may also request that CMS participate in pre-submission meetings to provide feedback on clinical trial design with respect to potential coverage considerations.
Commissioner Gottlieb stated in his post that ten engagements between manufacturers and private payors or health technology assessment organization have taken place since the program was created. These are opportunities that more device manufacturers should consider taking advantage of when preparing to gather clinical data to support a PMA or de novo application.
ACA plans scored a major victory last week when a federal court held that health plans participating on the ACA exchanges are entitled to unpaid cost sharing reduction (CSR) payments from the federal government. The case – Montana Health CO-OP v. United States – is the first decision opining on the federal government’s obligation to make CSR payments. However, this is but one of several significant legal rulings handed down this year in the perpetual battle between CO-OP plans and the federal government over the latter’s administration of the ACA. For example, federal courts in Massachusetts and New Mexico ruled on the legality of government’s method for calculating risk adjustment payments in January and February, and in June, a federal appellate court ruled on the government’s obligation to make payments under the ACA’s risk corridor program. While these decisions addresses different ACA programs and has unique facts, each case essentially boils down to a question over the government’s obligation to administer the ACA as it was statutorily conceived.
The CSR Litigation
The ACA implemented two reforms to ensure the affordability of plans offered on the exchanges: advanced premium tax credits and CSR payments. While the premium tax credits subsidized the insurance premiums for exchange enrollees with household incomes between 100% and 400% of the federal poverty line, CSR payments reduced the copayment, coinsurance, and deductible obligations of individuals between 100% and 250% of the poverty line. Plans are required to reduce the cost-sharing obligations for qualified enrollees and notify HHS of the reductions. In turn, the statute requires HHS to make periodic payments to such plans “equal to the value of the reductions.”
The Appropriations Clause requires a “valid appropriation” to have both a directive to pay and a source of funds. While the statutory language authorizing the CSR payments directed HHS to make CSR payments to plans, it lacked the designated source of funds from which the CSR payments can be made. In an attempt to avoid an Appropriation’s Clause violation, the Obama Administration included language in its 2014 budget authorizing HHS to use funds from the permanent appropriation for premium tax credits, reasoning (and later arguing in court) that the statutory language authorizing the premium tax credits was broad enough to allow payments from that fund to finance the CSR payments as well. In 2015, the House of Representatives successfully brought suit arguing that the use of premium tax credit funds to carry out the CSR payments violated the Appropriations Clause. The court’s injunction against the payment of CSRs was stayed while the case was on appeal, and in October 2017, the Trump Administration announced plans to stop CSR payments. Shortly thereafter, Montana Health and several other ACA plans filed lawsuits in the Court of Federal Claims arguing that the government was obligated to continue making CSR payments.
If this whole sequence of events seems familiar, it is because the same issue was the catalyst for the risk corridor litigation. In both cases, the lack of a funding source was probably the unintentional result of the ACA’s chaotic drafting process. The death of Senator Ted Kennedy and the unexpected election of Republican Senator Scott Brown resulted in the Democrats losing their so called supermajority in the Senate. At the time, the Senate had already passed its version of the ACA, and to avoid having to make the Senate vote on the bill again, the House of Representatives had to adopt the Senate’s draft of the bill without any changes. As such, minor technical errors in the bill, such as the lack of a source of funds, were included in the enacted legislation, and the general partisanship and gridlock in Congress made it impossible for lawmakers to subsequently correct these errors in a technical corrections bill.
Montana Health CO-OP v. United States
In Montana Health, the Plaintiffs argued that Section 1402 of the ACA clearly mandated that the federal government make CSR payments, notwithstanding the fact that Congress never appropriated money specifically for the payments. Because of the Obama Administration’s decision to use the premium tax credit fund to finance the CSR payments, Congress never actually appropriated any money for the CSR payments directly. The government countered that Congress never intended to impose such an obligation because the ACA never included a permanent appropriation for the CSRs. If Congress had intended the CSRs to be an obligation, the government argued, then the ACA would have included a statutorily created permanent funding source similar to the one used for the premium tax credits.
The court’s ruling in favor of the Plaintiff CO-OP relied heavily on the recent appellate ruling in the risk corridor case, Moda Health Plan, Inc. v. United States, reasoning that there was no authority for the government’s contention that a statutory obligation cannot exist absent budget authority. As such, the court reasoned, the lack of appropriated funds was irrelevant to whether such an obligation could be enforced by the court. The court in Moda also had to review whether subsequent appropriation riders evidenced Congress’s intent to impose a new payment methodology for the risk corridor program. In this case, however, there were no such subsequent Congressional actions at issue. In Montana Health, the court also rejected ancillary arguments made by the government, such as the fact that plans could mitigate the damage of the lack of CSR payments by increasing their premiums.
The Montana Health decision is significant because many plans—including Montana Health—had already set their premium rates when the CSR payments were suspended last fall. Therefore, the ruling is an important step towards properly compensating plans for the shortfall in CSR payments that they were unable to mitigate by increasing premiums for the current plan year. The battle over the CSR payments is far from over, however. The government is expected to appeal the decision, and there are several other pending lawsuits involving the CSR payments that are working their way through the court system.
 Montana Health CO-OP v. Unites States, No. 18-143C (Fed. Cl. Sept. 4, 2018).
 U.S. House of Representatives v. Burwell, 130 F. Supp. 3d 53, 57 (D.D.C. 2015) (Buwell I).
 U.S. House of Representatives v. Burwell, 676 F. App’x 1 (Mem.) (D.C. Cir. 2016) (Burwell III)
 Letter from Att’y Gen. Sessions to Sec’y Mnuchin & Acting Sec’y Wright (Oct. 11, 2017).
Congress continues to make progress towards funding the government despite having only seven business days remaining with both chambers in town prior to the September 30 deadline. The House Energy & Commerce Committee will be taking a closer look at value-based care in Medicare, which could touch on potential changes to the Stark Law and the Anti-Kickback Statute. We cover this and more in this week’s ML Strategies Health Care Preview, which you can find by clicking here.
We have continually provided updates on the application and approvals of Medicaid 1115 waivers that include work requirements. One such approved waiver is the Arkansas Works Program. As we previously noted, Arkansas became the first state to implement work requirements for Medicaid eligibility. A July 2018 report found that just over 46,000 Medicaid enrollees were subject to the requirement at that time. Of those enrollees, 30,228 were exempt from reporting because they were already employed or in school, had met the work requirement for SNAP eligibility, were disabled, or had at least one dependent child. 12,722 enrollees did not satisfy the reporting requirement, 1,571 reported an exemption, and 844 satisfied the reporting requirements.
As of early August, 5,426 individuals who were required to meet the work requirement had two months of non-compliance. As of September 1, 2018, those with three months of incomplete reporting will lose Medicaid coverage for the remainder of the calendar year (until January 1, 2019). (There is a five day grace period in which a beneficiary can retroactively report work activities, so beneficiaries had until 9:00 p.m. yesterday, September 5th, to report work activities.) As of this time, the exact number of those dropped from Medicaid coverage is unknown. But we will be watching and reporting out that number when it is released.
Finally, three consumer groups are suing the Trump administration in an effort to halt the program’s implementation, following on the heels of the successful stoppage of the waiver in Kentucky that also included a work requirement. The same judge that ruled against the Medicaid work requirement in Kentucky is also assigned to the Arkansas case. CMS is seeking to have the lawsuit transferred to a different judge.
LifeWatch sells telemetry monitors, a type of outpatient cardiac monitoring device, which several medical studies have found to be effective, and in some circumstances, medically necessary and superior to other treatments. Some large private insurers, as well as the Medicare and Medicaid programs, provide coverage for telemetry monitors, but the Blue Cross Blue Shield Association (which owns the right to the Blue Cross Blue Shield trademarks and tradenames and licenses them to insurers nationwide, including several defendants in this case), maintains a model medical policy that recommends not covering telemetry monitors, characterizing them as not medically necessary and/or investigational.
LifeWatch filed suit in federal court in 2012, suing the Blue Plans and the Association for $67 million and alleging that they conspired to deny coverage of its telemetry device despite scientific evidence supporting the benefits of the device. The district court dismissed the case for failing for allege anticompetitive effects. In particular, the district court found that LifeWatch failed to allege “competition-reducing” conduct on the grounds that each Blue Plan treats all telemetry providers equally and that Blue Cross’s actions were a legal exercise of its substantial buying power and ability to bargain aggressively.
On appeal, the Third Circuit Court of Appeals found that LifeWatch plausibly stated a claim and has antitrust standing. In particular, the court found that: (1) LifeWatch sufficiently relied on circumstantial evidence of an agreement by alleging both parallel conduct among the Blue Plans and “something more” (or a “plus factor”); (2) LifeWatch’s complaint alleged a national market for the purchase of outpatient cardiac monitors (rather than a market limited to telemetry monitors); (3) LifeWatch sufficiently pled anticompetitive effects; and (4) LifeWatch sufficiently alleged antitrust injury to have antitrust standing.
Ultimately, the Third Circuit found that LifeWatch had plausibly pled a Sherman Act Section 1 claim and remanded the case back to the district court. The Third Circuit also left open for the district court to consider whether Blue Cross is exempt from liability under the McCarran-Ferguson Act.
This decision is important because, while there are other antitrust challenges pending against the Association and its members, this case appears to be the first appellate “green light” to proceed on a challenge to the Association’s model medical policy and its implementation. For more detail and an in-depth analysis, you can read the full Alert HERE.
On August 10, 2018, South Dakota submitted a five-year Section 1115 waiver application to CMS to implement the South Dakota Career Connector program. The waiver application proposes work requirements for certain Medicaid beneficiaries. South Dakota is the latest to submit a 1115 waiver including work requirements.
Congress is back in session with several high-profile hearings and looming deadlines. The Senate will begin consideration of the nomination of Brett Kavanaugh to the U.S. Supreme Court and will begin its work with the House on conferencing a number of appropriations bills. In order to avoid a government shutdown, Congress will need to finalize its appropriations bills prior to October 1st or pass a continuing resolution. Also on our radar is the commencement of oral arguments regarding the Texas v. USA case which challenges the constitutionality of the ACA’s individual mandate along with the guaranteed issue and community rating provisions. We cover this and more in this week’s preview which you can find by clicking here.
The opioid epidemic has driven significant legislation this session. To help our readers track the pending opioid legislation, ML Strategies has created a chart to analyze various provisions of House and Senate bills and their overlap. The chart compares the provisions of HR 6 – SUPPORT for Patients and Communities Act, passed by the House on June 22, 2018, and the Senate’s combined package of opioid legislation that we previously analyzed here. The Senate is aiming to pass its opioid package after Labor Day. If the Senate package passes, the House and Senate need to reconcile differences between the two opioid bills. As the chart indicates, there are significant differences between the packages, so many issues will need to be resolved before this legislation lands on the President’s desk.
*Madeleine Giaquinto and Olivia Graham also contributed to this post.
On August 9, 2018, the Centers for Medicare and Medicaid Services (CMS) issued a proposed rule to overhaul the Medicare Shared Savings Program (MSSP). The proposal, titled “Pathways to Success,” would make significant changes to the accountable care organization (ACO) model at the heart of the program. The proposed changes include a restructuring of the current ACO risk tracks, updating spending benchmarks, increased ACO flexibility to provide care, as well as changes to the electronic health records requirements for ACO practitioners.
There are currently 561 Shared Savings Program ACOs serving over 10.5 million Medicare fee-for-service (FFS) beneficiaries. Under the MSSP, ACOs are assessed based on quality and outcome measures, and by comparing their overall health care spending to a historical benchmark. ACOs receive a share of any savings under the historical benchmark if they meet the quality performance requirements.
Currently, the MSSP allows ACOs to participate in one of three “tracks.” Track 1 is a “one-sided” model, meaning that participating ACOs share in their savings, but are not required to pay back spending over the historical benchmark. Track 2 and Track 3 are “two-sided” models, meaning that participating ACOs share in a larger portion of any savings under their benchmark, but may also be required to share losses if spending exceeds the benchmark. Currently, the vast majority of ACOs participate in Track 1.
Restructuring the Tracks
CMS proposes retiring Track 1 and Track 2, creating a BASIC track, and renaming Track 3 the ENHANCED Track. CMS describes the BASIC track as a “glide path” that will help ACOs transition to higher levels of risk and potential reward. To that end, the BASIC track contains five levels that ACOs would transition through over the course of a five year contract period, spending a maximum of one year at each level. The first two years would involve upside-only risk, with a transition to increasing levels of financial risk in the remaining three years. Current Track 1 ACOs will be limited to one-year of upside-only participation before taking on downside risk. This is a substantial acceleration from the current Track 1 Model, which permits ACOs to avoid downside risk for up to six years.
Finally, the proposed rule draws a distinction between low revenue ACOs and high revenue ACOs. Low revenue ACOs (typically composed of rural ACOs and physician practices) would be permitted to spend two 5-year contract periods on the BASIC track. High revenue ACOs (typically composed of hospitals) would be permitted only one 5-year contract period on the Basic track.
Source: Proposed Rule: Medicare Program; Medicare Shared Savings Program; Accountable Care Organizations–Pathways to Success
Updating the Historical Spending Benchmarks
Every year, an ACO’s spending is comparing to its historical benchmark to determine the ACO’s participation in any shared savings or losses. Under the proposed rule, the benchmark methodology will incorporate regional FFS expenditures beginning in the first contract period. Also, the historical benchmark will be rebased at the beginning of each 5-year contract period. Adjustments to the benchmark related to regional expenditures will be capped at 5% of the national Medicare FFS per capita expenditure. According to CMS, these changes will improve the predictability of historical benchmark setting and increase the opportunity for ACOs to achieve savings against the historical benchmark.
Expanding ACO Flexibility in Beneficiary Care
The proposed rule contains several changes to the MSSP aimed at increasing the flexibility of ACOs to provide cost-effective care to their assigned beneficiaries. For example, to support the ACO’s coordination of care across health care settings, ACOs will be eligible to receive payment for telehealth services furnished to prospectively assigned beneficiaries even when they would otherwise be prohibited based on geographic prerequisites. The proposed rule also expands the Skilled Nursing Facility (SNF) 3-Day Rule Waiver to all ACOs in two-sided models. This waiver permits Medicare coverage of certain SNF services that are not preceded by a qualifying 3-day inpatient hospital stay.
Finally, the proposed rule permits ACOs in two-sided models to reward beneficiaries with incentive payments of up to $20 for primary care services received from ACO professionals, Federally Qualified Health Centers, or Rural Health Clinics.
Changing Electronic Health Record Requirements
Currently, one of the quality measures for which ACOs are assessed relates to the percentage of participating primary care providers that successfully demonstrate meaningful use of an electronic health records system for each year of participation in the program. The proposed rule eliminates this measure. Instead, CMS proposes to adopt an “interoperability criterion” that assesses the use of certified electronic health record technology for initial program participation and as part of each ACO’s annual certification of compliance with program requirements.
CMS’s proposal is not surprising in light of CMS Administrator Seema Verma’s recent comments about upside-only ACOs. At an American Hospital Association annual membership meeting this past spring, Administrator Verma is quoted as saying:
[T]he majority of ACOs, while receiving many waivers of federal rules and requirements, have yet to move to any downside risk. And even more concerning, these ACOs are increasing Medicare spending, and the presence of these ‘upside-only’ tracks may be encouraging consolidation in the market place, reducing competition and choice for our beneficiaries. While we understand that systems need time to adjust, our system cannot afford to continue with models that are not producing results.
Though the rule is only a proposal at this time, the above comments illustrate that CMS is serious about requiring providers to be more financially accountable for the care of their patients. And the agency is clear-eyed about the short-term impact of the proposal, estimating that more than 100 ACOs will exit the MSSP over the next 10 years if the proposal is finalized. The agency nevertheless believes that the new program would be attractive to providers due to its simplicity (as compared to the current program) and the new opportunity it offers clinicians to qualify as participating in an Advanced Alternative Payment Model (APM) when they reach year 5 of the BASIC track. APMs are an important concept under the Quality Payment Program (QPP) that was ushered in by the Medicare Access and CHIP Reauthorization Act of 2015. Clinicians participating in an Advanced APM are exempt from reporting under the QPP’s Merit-based Incentive Payment System (MIPS) and are eligible for certain financial incentives. The fates of the MSSP and the QPP are thus intertwined, and the co-evolution of the programs is at a critical stage, especially in light of CMS’s July release of a proposed rule modifying the QPP. We will continue to report on the developments of both of these programs.
Those interested in commenting on the MSSP proposal must do so by October 16, 2018.