Healthcare Law Update: May 2018
OIG Issues Advisory Opinion on Provision of Samples by a Device Distributor
By Courtney A. Groh
On April 30, 2018, the U.S. Department of Health and Human Services (HHS) Office of Inspector General (OIG) issued a favorable Advisory Opinion No. 18-02 regarding the provision of sample ostomy products to patients by a device distributor (the Arrangement). The OIG concluded that the beneficiary inducement civil money penalty (CMP) was not implicated, as the Arrangement would not influence a beneficiary to make any future purchases from a provider, practitioner or supplier. Specifically, the OIG reconfirmed its position that manufacturers and distributors are not considered a "provider, practitioner or supplier," unless the entity also owns or operates, directly or indirectly, pharmacies, pharmacy benefit managers (PBMs) or other entities that file claims for payment under the Medicare or Medicaid programs.
The Anti-Kickback Statute (AKS), however, is implicated, as the free samples may be intended to induce federal healthcare program beneficiaries to self-refer to the ostomy products in the future. In approving the Arrangement, the OIG concluded that the Arrangement presents a low risk of fraud and abuse, and declined to impose administrative sanctions for the following reasons:
- The Arrangement is unlikely to increase costs to patients of federal healthcare programs, as the patients are explicitly instructed that the samples cannot be billed to any third-party payor.
- The Arrangement does not contain any of the hallmarks associated with problematic "seeding" programs, such as barriers to switching between products or high costs of products compared to alternative treatments. Further, the provision of the sample is not contingent on any future purchases.
- The one-time sample covers a short period of time (two to three days) and is relatively low in value ($6 to $38).
- The Arrangement is unlikely to result in inappropriate utilization. Once the free sample is depleted, the patient will be subject to cost-sharing obligations and restrictions on the quantity of ostomy supplies that will be reimbursed by federal healthcare programs.
Convictions Under AKS and Healthcare Fraud Supported by Sufficient Evidence
By Kaitlyn Cawley
In United States v. Gevorgyan, 886 F.3d 450 (5th Cir. 2018), the court of appeals affirmed convictions of a defendant charged with committing healthcare fraud and violating the AKS. The defendant served as an "operations person" of a clinic, and he personally paid a marketer to bring patients into the clinic. The marketer then provided money to prospective patients. The defendant challenged his convictions for conspiracy to violate, and substantive violation of, the AKS and his convictions for conspiracy to commit, and substantive commission of, healthcare fraud.
The court found that the defendant's interactions with the clinic's receptionist, whereby he trained the receptionist to keep a ledger tallying the number of incoming patients and such ledger contained total figures written by the defendant that directly mirrored figures on payments that the defendant paid to the marketer — along with the defendant's ownership of the corporation that acted as the source of payments to the marketer — was sufficient evidence to meet the mens rea element under AKS. The court also ruled that this evidence sufficiently supported the finding that the defendant voluntarily participated in the conspiracy to violate AKS.
The defendant also targeted the mens rea element of the healthcare fraud convictions. However, the court was not swayed by the defendant's arguments that he was too young and inexperienced in the medical field to have knowledge of the clinic's healthcare fraud. The court held that sufficient evidence supported the jury's determination that the defendant knew of the healthcare fraud and was aware of the conspiracy's purpose. The court relied on the facts that the defendant trained and supervised others regarding patient intake, played a central role in the scheme and served as an owner, a director and an officer of the corporation issuing payments to the marketers.
Healthcare Entity May Be Liable for FCA Constructive Discharge Without Taking Adverse Action Against Employee
By Nathan A. Adams IV
In Smith v. LHC Gp., Inc., No. 17-5850, 2018 WL 1136072 (6th Cir. Mar. 2, 2018), the court of appeals reversed the district court's determination that a former employee and director of nursing for a home healthcare provider failed to state a claim for constructive discharge in violation of the False Claims Act (FCA), 31 U.S.C. §3730(h) and Kentucky law. The plaintiff alleged that she felt like she needed to quit her job after reporting an alleged fraudulent scheme in which she refused to participate. The defendant objected that it did not seek her resignation and took no adverse employment action that could constitute a discharge, demotion or other action for which it could be held liable. The district court agreed with the defendant that the plaintiff failed to state a claim because she alleged no facts showing that "the Defendants did anything directly toward her to make her quit her job" (emphasis original). The plaintiff alleged that she discovered that other employees regularly admitted patients without the requisite clinical evaluation or documentation, and she reported it to senior management, but management "invariably ignored her complaints." Reversing the district court, the court of appeals determined that, taking the plaintiff's allegations as true, a jury could find that the defendant "created intolerable conditions by ignoring [her] complaints of illegal activity." Moreover, the court of appeals ruled that an "employee alleging constructive discharge need not prove that his or her employer undertook actions with the subjective intention of forcing the employee to quit. Rather, the  intent requirement can be satisfied so long as the employee's resignation was a reasonably foreseeable consequence of the employer's actions."
Hospital Fails to Plead Antitrust Claim Against Competitor
By Nathan A. Adams IV
In NorthBay Healthcare Gp., Inc. v. Kaiser Found. Health Plan, Inc., No. 17-cv-05005-LB, 2018 WL 1569821 (N.D. Cal. March 30, 2018), the district court dismissed plaintiff NorthBay's first amended complaint on the grounds that it failed to plead a cognizable antitrust claim by failing to prove that it suffered any causal antitrust injury and declined to exercise supplemental jurisdiction over the plaintiff's state law claims. Kaiser Foundation Health Plan (Kaiser Health Plan) terminated an agreement with the plaintiff for emergency medical services and then began reimbursing the plaintiff at less than half the rate specified in the agreement. The plaintiff argued that it was entitled to accept nothing less than full payment in the absence of the agreement, and that Kaiser Health Plan had underpaid it by more than $26 million. Regarding this "harm," the court determined that no allegations showed that the defendants' actions restrained trade in the relevant marked or injured overall competition, as opposed to showing injury only to the plaintiff. The district court also determined that the plaintiff pled:
[N]o facts to support its conclusion that Kaiser Hospitals steered uninsured or underinsured patients onto NorthBay. Even assuming NorthBay had pleaded an injury of the type the antitrust laws were intended to prevent, its claims would fail because it does not plead that it suffered that antitrust injury itself. Fundamentally, what NorthBay is alleging (aside from individualized grievances such as its complaints about the 2010 Agreement) is not antitrust injury to itself but injury to a third party — a health insurer called Western Health Advantage ("WHA"), of which NorthBay owns 50% — that competes with Kaiser Health Plan.
Last, the district court observed that the plaintiff "may have pleaded itself out of a claim" by alleging that it "can set its billing rates for its services at whatever level it wants — and in the absence of a negotiated agreement, patients and insurance companies are required to pay NorthBay at those rates." As such, the district court decided, NorthBay suffered no antitrust injury.
Home Healthcare Service States Sherman Act Claim Against Another Owned by a Hospital System
By Nathan A. Adams IV
In American Home Healthcare Servs., Inc. v. Floyd Mem'l Hosp. and Health Servs., No. 4:17-cv-00089-TWP-DML, 2018 WL 1172995 (S.D. Ind. Mar. 5, 2018), the district court ruled on a motion for judgment on the pleadings that a home healthcare service stated a Section 2 Sherman Act claim against a hospital system that owns a competing licensed home healthcare agency on the grounds that the defendant has allegedly installed mechanisms into the discharge planning process that increase the likelihood that it will receive patient referrals to its home healthcare agency. Specifically, the plaintiff alleges that the defendant requires physicians to take an extra step to select any home health provider besides the defendant's due to the fact that the only two choices on the computer drop-down menu are "Floyd" and "Other." As a result, plaintiff alleges that at least 64 percent of Medicare patients discharged from the hospital are referred in-network and that total self-referrals constitute no less than 70 percent of all referrals. The plaintiff alleged that the relevant product market is home health services following discharge from a hospital, and the relevant geographic market was the hospital. Although denying the defendant's motion for judgment on the pleadings, the district court denied the plaintiff's motion to dismiss a defamation claim premised upon a pre-litigation email sent by a physician to select others relating to the hospital's referral practices.
Surgeon Stated Sherman Act Claim Against Hospital Where Denied Privileges
By Nathan A. Adams IV
In Toranto v. Jaffurs, No. 16cv1709-JAH (NLS), 2018 WL 1410736 (S.D. Cal. Mar. 21, 2018), the district court determined that a pediatric plastic and craniofacial surgeon stated a claim for violations of the Sherman Act and defamation based on allegations that an employee of the University of California Board of Regents sent false, derogatory information to the hospital at which the surgeon sought admitting privileges, and that the employee and hospital officials conspired to deny him privileges. The physician alleged that the conspiracy restraining him from practicing resulted in longer patient wait time and higher costs and prevented certain complex pediatric craniofacial surgery procedures from being available at all. The court rejected the defendants' argument that they are a single entity incapable of conspiracy and that an employee cannot conspire with her employer. The court likewise rejected the defendants' argument that the unilateral power to deny privileges cannot result in a restraint of trade. Also significant, the court rejected the defendants' argument at the dismissal stage that the alleged statements of the employee of the Board of Regents that the physician was not fit to operate on children were privileged. The plaintiff alleged that the statements were not intended to aid in his evaluation, the employee viewed him as an economic threat to his practice and the employee acted out of a deep-seated animosity for him with the goal of denying him employment.
Hospital Collection Agency Avoids FDCPA Flat-Rating Bar
By Nathan A. Adams IV
In Echlin v. PeaceHealth, 887 F. 3d 967 (9th Cir. 2018), the court of appeals affirmed the district court's grant of summary judgment against a former patient who filed a putative class action against a hospital and purported debt collection agency alleging violations of the Fair Debt Collection Practices Act (FDCPA). After a patient of PeaceHealth Southwest Medical Center ignored multiple requests for payment of her medical bill, PeaceHealth referred her delinquent account to Computer Credit Inc. (CCI). The plaintiff argued that CCI fell within FDCPA's prohibition against so-called "flat-rating," whereby a third party (usually for a flat rate) sells form letters to a creditor "which create the false impression that someone (usually a collection agency) besides the actual creditor is 'participating' in collecting the debt." The court of appeals rejected the plaintiff's argument based on these facts: 1) CCI independently screened accounts for barriers to collection; 2) CCI alone drafted and mailed the collection letters, without input from PeaceHealth; 3) the letters invited debtors to contact CCI by mail or phone, and CCI trained its personnel to handle such inquiries; 4) CCI in fact received approximately 500 calls a week from debtors of its various clients and received several hundred pieces of mail from PeaceHealth debtors; 5) in their conversations with debtors, CCI staff provided a variety of information about their debts and how to repay them; 6) CCI maintained a website where PeaceHealth debtors could access individualized information about their debts and submit documents to CCI; and 7) CCI sometimes received and forwarded to PeaceHealth payments it received from debtors. The court of appeals also agreed with the district court that the complaint did not give CCI fair notice of a claim that it violated FDCPA's prohibition against threatening to take any action that could not legally be taken or that was not intended to be taken.
Patient Allegedly Injured by Kickback Scheme Fails to State Claim Against Hospital
By Nathan A. Adams IV
In S.B. v. Tenet Healthcare Corp., No. 17-14102, 2018 WL 1836029 (11th Cir. 2018), the plaintiff sued the defendant in connection with facts relating to the settlement into which the defendant entered to resolve criminal and civil litigation involving kickbacks. Clinica de la Mama offered prenatal care and ancillary services to predominantly uninsured and indigent Hispanic women residing in Georgia. For a fee, Clinica assigned a pregnant woman to a doctor who provided prenatal and delivery services at a designated hospital. After delivery of a baby, the hospital became eligible for Medicaid payments for the prenatal, delivery and newborn services. The defendant contracted with Clinica to provide management, marketing and translation services for hospitals that were deemed kickbacks resulting in a $513 million settlement that, however, did not compensate Clinica or the defendant's patients. "S.B." was a patient referred by Clinica to a Tenet hospital. S.B. incurred expenses that her private insurance would have covered and demanded reimbursement from Clinica that it refused. The court of appeals affirmed dismissal of S.B.'s complaint for fraud and negligent misrepresentation against the defendant because she provided "only conclusory allegations that Tenet 'utilized Clinica as its agent,' Clinica's owner and operators ... 'acted as agents of the hospitals,' and that Tenet gave 'explicit instructions' to Clinica." S.B. also failed to allege facts to support a plausible inference that the statements or conduct of Tenet reasonably caused her to believe that Tenet consented to have acts done on its behalf by Clinica. S.B. also asserted a claim for money had and received, but the statute of limitations barred this claim.
HHS Releases RFI to Request Input on Drug Pricing Proposals
By Miranda A. Franco
On May 14, 2018, HHS issued a request for information (RFI) on the administration's "American Patients First" drug pricing policy blueprint. The RFI seeks input from stakeholders on a wide range of policy proposals included in the blueprint released late last week. HHS Secretary Alex Azar, U.S. Food and Drug Administration (FDA) Commissioner Scott Gottlieb, and Centers for Medicare & Medicaid Services (CMS) Administrator Seema Verma held a press conference alongside the release of the RFI to provide additional detail on the administration's potential next steps. Comments on the RFI are due on or before July 16, 2018.
Overall, the RFI echoes the set of questions and priorities included in the administration's blueprint document, reflecting key themes of enhanced competition, transparency and value-driven incentives. The RFI sets forth the same four "challenges" in the U.S. drug market and proposes nearly identical "immediate actions" and "further opportunities" for each challenge discussed in the blueprint. However, the RFI also includes a new section not included in the blueprint, titled "Additional Feedback." There, HHS solicits any other suggestions to "improve the affordability and accessibility of prescription drugs" as well as comments regarding regulatory burdens posed by current and/or proposed drug pricing rules.
HHS is looking for feedback on topics such as whether the Medicaid drug rebate program may pose a barrier to price negotiations in other markets and how changes to the rebates in the Affordable Care Act (ACA) have impacted list prices of drugs. The RFI also seeks feedback on proposed changes to Medicare Parts B and D, the 340B Drug Discount Program, and FDA-centric issues such as which resources or development tools from FDA would most reduce the development costs of biosimilars.
Given the blueprint's broad scope, there is potential for significant market implications in the longer term. Although many of the proposals may leverage existing executive authority, including potentially Center for Medicare & Medicaid Innovation (CMMI) demonstration authority, it is likely that the administration may call on Congress to remove statutory roadblocks to lower drug prices.
The blueprint and other administration statements are a mixture of general principles and specific actions, but they are a long way from actual implementation. The blueprint mostly lists potential steps the administration may take. Some of the ideas can be put into effect through regulations or guidance documents. Some will require legislation, provided the administration is beginning to move forward on select priority items in the near term. For example, CMS released updated drug dashboard data, reflecting the administration's focus on transparency in drug prices.
Additional proposals are in the works, and given the request for comment on an extensive list of topics, stakeholders should closely review the blueprint and RFI to consider topics that merit submission to HHS.
Information contained in this alert is for the general education and knowledge of our readers. It is not designed to be, and should not be used as, the sole source of information when analyzing and resolving a legal problem. Moreover, the laws of each jurisdiction are different and are constantly changing. If you have specific questions regarding a particular fact situation, we urge you to consult competent legal counsel.