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On Thursday, July 11, 2019, the White House administration reversed course on the Department of Health and Human Services’ (HHS) recent proposal to reform drug manufacturer rebate system. As we previously reported, HHS’s February 6, 2019 proposed rule sought to modify the Anti-Kickback Statute safe harbor protection with the aim of lowering prescription pharmaceutical product prices and out-of-pocket costs for consumers (primarily Medicare Part D and Medicaid Managed Care Plan members). With the proposed rule, HHS hoped to encourage medication manufacturers to pass discounts directly to consumers and develop a transparent framework for the prescription drug product market.

The public comment period for the proposed rule closed at midnight on April 8, 2019, with over 25,000 comments received. The pharmaceutical industry welcomed the proposed rule. Pharmaceutical Research and Manufacturers of America (PhRMA) informed HHS in April that it considers the proposed reform of the rebate system to be urgent. On the other hand, payers, pharmacy benefit manager and providers have opposed the proposal, collectively warning that the elimination of the safe harbors could lead to higher costs for patients.

According to several reports, the administration’s decision to back away from the proposed rule is based on the prospects of bipartisan legislation aimed at reducing drug costs, as well a concern that the proposed rule would have imposed increased drug costs on seniors. In a May 2019 report, the Congressional Budget Office estimated that the proposed rule would increase federal spending by about $177 billion from 2020 to 2029, with increases in Medicare Part D plan premiums.   HHS officially withdrew notice of its pending final rule on July 10, 2019.

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The Department of Justice intervened in a False Claims Act lawsuit involving “so-called charitable patient assistance funds” used for prescription drug copays. The DOJ wants to make “clear that the Department will hold accountable drug companies that pay illegal kickbacks to facilitate increased drug prices.”  See a report at the Anticorruption blog here.

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A medical imaging company is paying for its flawed data security system. In addition to its system failures, the company failed to investigate and respond properly when alerted to problems by the FBI. As a result, the Office of Civil Rights imposed a $3 million penalty and required a corrective action plan. This yet another warning to the health care industry that data security matters.

Office of Civil Rights Enforcement

The Office of Civil Rights (OCR) in the U.S. Department of Health and Human Services investigates and enforces violations of HIPAA, the Health Insurance Portability and Accountability Act. In this case, OCR investigated a medical imaging company that allowed privacy information about more than 300,000 patients to be visible on the internet.

Compounding The Failure

OCR reported that an “insecure transfer protocol (FTP) web server” permitted internet searches to access social security numbers and other patient data. Because the company had not conducted a risk assessment, it did not identify the problem. In fact, it did not even have required Business Associate Agreements in place with its vendors. Compounding all this, the company declined to “identify and respond” for more than four months after the FBI notified the company of the failure.

Prevention Is The Cure

Every company handling ePHI (electronic protected health information) must protect its patients and itself. If you have questions about protecting ePHI, please feel free to contact us.

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As previously reported, last December the U.S. District Court for the District of Columbia ruled that the Department of Health and Human Services (HHS) had overstepped its bounds when it slashed the 2018 Medicare Part B outpatient reimbursement rates for covered drugs purchased under the 340B Program. AHA v. Azar, 1:18-cv-2084-RC (D.D.C. December 27, 2018). The court, however, held off on imposing a remedy until after the parties first had the opportunity to provide further input. On May 6, 2019, having received that input, the court has now ordered a remedy, which it has also applied to the HHS’s identical reimbursement rate reduction for 2019. The court sent both the 2018 and 2019 rate-setting rules back to the agency to give “it the first crack at crafting appropriate remedial measures” and directed HHS to “resolve this issue promptly.”
The controversy began when HHS, in its annual rulemaking setting Medicare’s outpatient payment rates for 2018, adopted a new rule that changing the amount hospitals would receive for providing covered drugs purchased through the 340B Program. The 340B Program caps the prices drug manufacturers may charge for certain medications. HHS’s new rule dropped the reimbursement rate from the average sales price (ASP) of a drug plus 6% to the ASP minus 22.5%, an almost 30% reduction. Previously, the spread between the discounted 340B Program drug pricing—which the agency estimated averaged 22.5% below ASP—and Medicare Part B reimbursement rates gave 340B hospitals additional funds for providing care to underserved patient populations. HHS’s new rates eliminated that spread and reduced hospital drug reimbursement in 2018 alone by approximately $1.6 billion.
After the 2018 rates became effective, several hospital associations and non-profit hospitals sued HHS over the reduction. As noted, in December 2018, the court ruled that HHS had clearly exceeded its statutory authority with the 2018 rate cut. However, HHS’s 2018 rule had concurrently reallocated the money saved from the 340B Program to increasing payment for other Part B drugs and services. Due to this fact and to other potential administrative challenges implicated by vacating the rule, the court asked the parties to submit briefs on what would be an appropriate remedy.
While the parties were informing the court of their views, the plaintiffs also added an identical challenge to HHS’s 2019 340B payment cuts, which went into effect January 1, 2019. The court again ruled that HHS’s 2019 rate reduction had “fundamentally altered the statutory scheme” and that HHS had clearly acted outside its authority.
However, the court likened crafting a remedy to trying to “unscramble the egg ….” The court rejected the plaintiffs’ request to order HHS to pay hospitals the difference between the former rates (ASP plus 6%) and the reduced rates (ASP minus 22.5%) for all applicable drugs already provided in 2018 and 2019 and to apply the higher rates going forward. Instead, the court found there were multiple possible solutions the agency could implement and sent the rules back to HHS to determine the appropriate remedy. These possible fixes included increasing rates in future years in an effort to “make up for [HHS’s] underpayments in 2018 and 2019” or amending the 2018 and 2019 rules and issuing retroactive payments. The court noted a concern that “there is some question as to whether the agency’s actions must be budget neutral,” meaning that increasing 340B payments might, to the extent lawful, necessitate decreasing and partially recouping payment for the other services that had been increased. The court stated that the agency was in the best position to determine that question on remand and declined to vacate the rules to “allow the agency more flexibility to determine the least disruptive means of correcting its underpayments ….” Finally, the court retained jurisdiction and warned that it “may reconsider the remedy if the agency fails to fulfill its responsibilities in a prompt manner.” Towards that end, the court ordered the parties to submit a status report on the agency’s progress within 60 days.
HHS has already filed an appeal but asked for a stay until there is a final judgment from the district court. We will continue to track this case during the remand and during any appeal. We remind providers that they may want to preserve their ability to challenge 340B reimbursement reductions when filing their 2018 and 2019 cost reports.
If you would like to discuss any of the details or implications of this matter for your business, please speak to one of the individuals listed in this publication or your usual contact at the firm.

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The Department of Justice just released new guidance how to obtain credit for cooperation under the False Claims Act (FCA).  The guidance stresses the importance of cooperation but mentions other actions as well.  The FCA greatly impacts the health care sector, with settlements and judgments reaching to billions of dollars.  Please see the post on the Anticorruption blog for a description of this guidance.

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When healthcare entities are seeking to expand their operations, they often will find interesting targets who have union-represented employees.  A union’s presence will create additional compliance obligations but, contrary to common misconceptions, union-related obligations are not necessarily unmanageable.
In a recent case, which arose after new owners took over a skilled nursing home facility, the National Labor Relations Board reiterated the standards that will determine whether a buyer must recognize the seller’s former labor union, retain former union-represented employees, and bargain with that union before initially determining the wages, hours, and other working conditions at the organization.  Ridgewood Health Care Center, Inc., 367 NLRB No. 110 (Apr. 2, 2019).  The Board also clarified an existing rule in a way that will reduce the potential risk for a buyer.

  1. The Board reiterated that, generally, a buyer must recognize the seller’s union if both (a) the buyer operates the organization the same as before and (b) the buyer retains a majority of the union-represented employees.

A threshold question in these situations, when a buyer acquires a unionized entity, is whether the buyer must recognize the union as the employees’ representative.  This will not necessarily occur in every situation.  As the Board reiterated in Ridgewood, the buyer must recognize the seller’s labor union if (a) the buyer runs the operation essentially the same way as the seller (the “substantial continuity” element) and (b) the buyer hires enough of the seller’s employees that they constitute a majority of the employees in a new appropriate bargaining unit (the “majority” element).  Under the facts at issue in Ridgewood, the buyer operated the nursing facility at the same location as before, and provided the same types of services to the same clientele.  So, there was no dispute that the buyer satisfied the substantial continuity element.  As noted below, however, the majority element can create a more nuanced question.

  1. An employer may not decline to hire union-represented employees in an effort to avoid recognizing the union.

In Ridgewood, the Board also flagged an issue that can create a trap for unwary buyers.  The Board reiterated that it is unlawful for a buyer to decline to retain union-represented employees in an effort to avoid satisfying the majority element above.  In other words, if the buyer fills an existing position by hiring from the outside, rather than retaining the union-represented employee who previously held the position, the buyer must have a legitimate business reason for doing so (and that reason cannot be a desire to avoid a labor union).  If the buyer discriminates on the basis of union membership when it is filling positions, the Board will deem the buyer to have satisfied the majority factor, and the Board also will issue other penalties (including reinstating the employees who experienced discrimination).
In the case at hand, Ridgewood’s new owners had retained just 49 of the 101 union-represented employees before the sale.  Thus, on its face, they narrowly avoided satisfying the majority element.  However, this ‘narrow miss’ raised eyebrows at the Board, and a Board judge ultimately determined that the employer had declined to hire at least four employees due to their union membership.  Accordingly, the Board ordered the new owners to recognize the union as the employees’ representative, and to rehire these four additional employees.

  1. Although the buyer often may set the initial wages, hours, and other terms of employment, the Board clarified when the buyer must bargain first.

The Board also addressed another common question that arises after sales of union-represented entities.  At default, even if the buyer operates the organization the same, and even if the buyer retains enough employees to satisfy the “majority” element, that does not necessarily require the buyer to bargain with the union before setting initial wages, hours, and other terms of employment.  Rather, at default, the buyer may determine the initial working conditions that will apply after the sale, with the understanding that the buyer may need to bargain with the union after that (unless there is an existing contract).
However, like most Board doctrines, this rule has exceptions.  The Board has long recognized that a buyer must bargain with a union before setting initial terms of employment if the buyer makes itself a “perfectly clear” successor.  A buyer will make itself a perfectly clear successor if the buyer has said or done something that will cause the union-represented employees to believe the buyer will retain “all or substantially all” of them without changing their wages, hours, or other conditions of employment.  Obviously, given this and other rules, buyers should be very careful when describing their plans for union-represented employees.
Finally, in Ridgewood, the Board described how anti-union discrimination will affect this “perfectly clear” successorship doctrine as well.  For the past several years, the Board took the position that an employer could become a perfectly clear successor as well (rather than merely having to recognize the union) if the employer discriminated against some union-represented employees when staffing the organization or otherwise proceeding after the sale.  In Ridgewood, however, the Board slightly narrowed this rule, and held that an employer’s discrimination would make it a perfectly clear successor only if the discrimination affected “all or substantially all” of the union-represented employees.
Here, where the Board found that the buyer discriminated against four of the 101 union-represented employees, that was enough to require the buyer to recognize the union, but not bargain before setting initial terms and conditions of employment.  Nevertheless, a buyer should take care when deciding whether to retain union-represented employees, because any discrimination could create serious consequences.

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Healthcare employers should consider a recent trend when determining what safety requirements to impose on their employees. Recent settlements between healthcare providers and the Equal Employment Opportunity Commission show that even employers in the healthcare industry must consider accommodating their employees’ religious beliefs when enforcing mandatory vaccination policies.

On June 25, 2019, the EEOC announced that a Michigan hospital had agreed to compensate a medical transcriptionist $74,418 to settle claims arising from the hospital’s alleged failure to reasonably accommodate her sincerely held religious beliefs. The EEOC filed suit, stating that the hospital violated Title VII of the Civil Rights Act—which requires that employers reasonably accommodate employees’ sincerely held religious beliefs, unless that would cause an “undue hardship.” Specifically, the hospital rescinded a job offer to an applicant after she refused an influenza vaccine based on her religious beliefs against inoculation. The hospital’s policy allowed employees to wear masks in lieu of receiving the vaccines, but only if they had disabilities that prevented them from receiving flu vaccines. The hospital refused to extend this same accommodation to the job applicant. The fact that the hospital provided this accommodation for disabilities made it more difficult for the hospital to deny this accommodation when requested for a sincerely held religious belief.

This settlement is part of a growing trend. For example, on December 23, 2016, a Pennsylvania hospital agreed to pay $300,000 to settle a religious discrimination claim filed on behalf of six former employees who were terminated for refusing to get flu vaccines on religious grounds. In that case, the hospital required employees to receive seasonal flu vaccines, and at least allowed employees to request exemptions for medical and religious reasons; however, the hospital allegedly granted 14 exemption requests based on medical reasons but denied every single religion-based request. Two other similar lawsuits by the EEOC are pending.

These EEOC actions are consistent with longstanding EEOC guidance, which states that employers covered by the Americans with Disabilities Act and Title VII cannot require all employees to receive influenza vaccines without regard for their medical conditions or religious beliefs—even during a flu pandemic.

Further, federal regulations broadly define “religious” beliefs as encompassing “moral or ethical beliefs as to what is right and wrong which are sincerely held with the strength of traditional religious views.” Thus, a federal court in Ohio found it “plausible” that veganism constituted a sincerely held religious belief. Where a hospital discharged an employee after she refused to be inoculated with a flu vaccine due to her veganism, the court refused to dismiss the former employee’s claims for religious discrimination under Title VII.

That said, employers need not accommodate their employees’ religious beliefs where doing so would impose an “undue hardship” (i.e., more than a de minimis cost) on the employer. Factors relevant to determining whether an accommodation would cause an “undue hardship,” particularly in the healthcare context, include “the assessment of the public risk posed at a particular time, the availability of effective alternative means of infection control, and potentially the number of employees who actually request accommodation,” the EEOC stated in an informal discussion letter. Thus, a federal court in Massachusetts found that granting an employee’s request to forgo a flu vaccination, while keeping her in a patient-care position requiring her to work in close contact with patients, would impose an “undue hardship” on the employer hospital because it would increase the risk of infecting already-vulnerable patients with influenza.

As our firm colleagues discussed last December, discrimination in the context of mandatory vaccination employment policies crops up not only in the context of religion, but also disability, and thus similar accommodation considerations must be made for qualified individuals with disabilities.

Takeaway

Even employers in the healthcare industry may be required to deviate from mandatory vaccination policies to accommodate an employee’s sincerely held religious beliefs. If faced with this question, please contact your counsel for further guidance.

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There are now only three weeks before the Fifth Circuit Court of Appeals is scheduled to hear oral arguments in Texas v. United States, the latest legal front in the ongoing battle over the future of the Patient Protection and Affordable Care Act (ACA).

Texas v. United States is a lawsuit focusing on the indispensability of the individual mandate, which required most Americans to maintain “minimum essential” health insurance coverage, to the rest of the signature Obama-era healthcare law.

As background, in 2013, in the case of National Federation of Independent Business v. Sebelius, the US Supreme Court upheld the constitutionality of the individual mandate. However, Chief Justice John Roberts upheld the mandate under Congress’s power in Article I, Section 8 of the Constitution “to lay and collect taxes,” holding that because the Commerce Clause does not authorize Congress to compel Americans to buy insurance, the individual mandate should instead be construed as the imposition of a tax upon those individuals who elect not to purchase insurance.

Fast forward to December 2017, and Congress passed the Tax Cuts and Jobs Act, which reduced the penalty for individuals electing not to purchase insurance to nil. This paved the way for Texas and various other states to bring the lawsuit of Texas v. United States in the United States District Court for the Northern District of Texas, arguing that the effective elimination of the tax penalty meant that there was no longer a constitutional basis for the individual mandate, and that because the mandate could not be severed from the remainder of the ACA, the entirety of the ACA should be struck down as unconstitutional. Judge O’Connor agreed and held that the entirety of the law was unconstitutional. This was despite opposition from Democratic controlled states as intervening defendants, and against the position taken by the US Department of Justice that while the mandate was unconstitutional, many of the other parts of the ACA were severable and could be preserved.

Now, on appeal before the Fifth Circuit, in addition to the Democratic controlled states, the House of Representatives has also intervened to defend the ACA, and the case docket is heavy with advisory briefs from amici curiae representing the various interest groups weighing in on both sides of the dispute. Most notably, however, the US Department of Justice, now under a new Attorney General, has changed its position, and informed the Court of Appeal that it now agrees with the District Court’s ruling that the mandate is unconstitutional and not severable from the remainder of the Act.

With briefing now concluded and extended oral arguments scheduled for the week beginning July 8, many expect that the Fifth Circuit’s subsequent ruling will be appealed to the U.S. Supreme Court to be decided next year ahead of the Presidential election. By then, it will have been ten years since the ACA passed Congress, and a health care industry that has shaped its business in compliance with that law for a decade now faces continued uncertainty as to the legal landscape ahead. We will provide a further update on the status of this significant case after oral arguments are completed.

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The Department of Justice ramps up enforcement against providers who claim incentives under the Electronic Health Records initiative.  Read an update here on our Anticorruption blog.

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A medical imaging company is paying for its flawed data security system. In addition to its system failures, the company failed to investigate and respond properly when alerted to problems by the FBI. As a result, the Office of Civil Rights imposed a $3 million penalty and required a corrective action plan. This yet another warning to the health care industry that data security matters.

Office of Civil Rights Enforcement

The Office of Civil Rights (OCR) in the U.S. Department of Health and Human Services investigates and enforces violations of HIPAA, the Health Insurance Portability and Accountability Act. In this case, OCR investigated a medical imaging company that allowed privacy information about more than 300,000 patients to be visible on the internet.

Compounding The Failure

OCR reported that an “insecure transfer protocol (FTP) web server” permitted internet searches to access social security numbers and other patient data. Because the company had not conducted a risk assessment, it did not identify the problem. In fact, it did not even have required Business Associate Agreements in place with its vendors. Compounding all this, the company declined to “identify and respond” for more than four months after the FBI notified the company of the failure.

Prevention Is The Cure

Every company handling ePHI (electronic protected health information) must protect its patients and itself. If you have questions about protecting ePHI, please feel free to contact us.

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