U.S. House of Representatives to Debate New Health Care Reform Proposal
The U.S. House of Representatives is scheduled to begin debate as early as this week on a health care reform proposal that is an amalgamation of three House bills. House Speaker Nancy Pelosi (D-CA) is principally responsible for the compromise legislation, the Affordable Health Care for America Act (“H.R. 3962”). This bill includes provisions to study the elimination of geographic disparities in Medicare provider reimbursement and a limitation on self-referral to physician-owned hospitals. Also contained in H.R. 3962 is a requirement that the Secretary of Health and Human Services negotiate drug prices on behalf of Medicare beneficiaries. The House proposal does not address the impending 21% fee reduction in the Medicare physician payment formula. A separate bill entitled the Medicare Physician Payment Reform Act of 2009 (“H.R. 3961”) would eliminate the Calendar Year 2010 physician fee reduction and replace the current sustainable growth rate (“SGR”) formula with a model that grows at the rate of GDP plus 1% for most physician services and GDP plus 2% for certain primary and preventive care services. Spending related to H.R. 3961 would also be restricted by budget neutrality provisions going forward.

The Congressional Budget Office (“CBO”) estimates that, between 2010 and 2019, the cost of coverage expansion included in H.R. 3962 will be $894 billion, which “primarily reflects $425 billion in net federal outlays for Medicaid and CHIP and $605 billion in federal subsidies that would be provided to purchase coverage through the new insurance exchanges.” However, this increase “would be more than offset by the combination of other spending changes,” including a $426 billion reduction in spending and $572 billion in revenues related to income tax surcharges on high-income individuals. Ultimately, H.R. 3962 would represent a “net reduction in federal budget deficits of $104 billion.” In comparison, the CBO’s estimate for the Senate Finance Committee proposal, the America’s Healthy Future Act of 2009 (“S. 1796”), is an $81 billion reduction in federal deficits during that time.

The full text of H.R. 3962 may be found here; the CBO report on H.R. 3962 may be found here. H.R. 3961 may be found here. Mark Faccenda

CMS Publishes Calendar Year 2010 OPPS/ASC Final Rule
On October 30, 2009, the Centers for Medicare and Medicaid Services ("CMS") published its Calendar Year ("CY") 2010 Outpatient Prospective Payment System ("OPPS") and Ambulatory Surgery Center ("ASC") final rule with comment period. The final rule is available on the CMS website at www.cms.hhs.gov/HospitalOutpatientPPS/ and www.cms.hhs.gov/ASCPayment/ and will be published in the November 20, 2009 Federal Register. Public comments are due by 5 PM EST on December 29, 2009. CMS will respond to comments in its CY 2011 OPPS/ASC final rule.

Under the OPPS portion of the final rule, hospitals will receive an inflation update of 2.1 percent in their payment rates for services furnished to Medicare beneficiaries in outpatient departments, with such amount reduced by 2 percent for most services furnished by hospitals that do not participate in the Quality Data Reporting Program ("QDRP") for outpatient services or fail to meet such requirements. This reduction will not apply to payments for separately payable pass through drugs, biologicals and devices, separately payable non-pass through drugs and non-implantable biologicals, separately payable therapeutic radiopharmaceuticals, and services assigned to New Technology Ambulatory Payment Classifications. Hospitals will continue to be subject to hospital outpatient department QDRP requirements to provide quality data for the current seven chart-abstracted emergency department and surgical care measures and four claims-based imaging efficiency measures for CY 2011 payment determinations. CMS will implement a hospital outpatient department QDRP validation requirement to ensure that hospitals are accurately reporting measures using chart-abstracted data. The agency will also establish procedures to make QDRP quality measure data publicly available as early as June 2010. In the final rule CMS provides OPPS payment for new, comprehensive pulmonary and intensive cardiac rehabilitation services furnished to beneficiaries with chronic obstructive pulmonary disease, cardiovascular disease, and related conditions, effective January 1, 2010. The agency also establishes payment to rural providers under the Medicare physician fee schedule for kidney disease education services furnished on or after January 1, 2010, for Medicare beneficiaries diagnosed with Stage IV chronic kidney disease. CMS will pay for the acquisition and pharmacy overhead costs of separately payable drugs and biologicals without pass through status at the average sales price ("ASP") plus four percent. The agency will provide payment for separately payable therapeutic radiopharmaceuticals with ASP data at ASP plus four percent. CMS will pay for brachytherapy services based on median unit costs in CY 2010. CMS will continue to pay two separate partial hospitalization program per diem rates, one for days with three services ($150) and another for days with four or more services ($211).

Regarding the physician supervision requirements for hospital outpatient incident to therapeutic services, CMS reiterates that in its CY 2009 OPPS proposed and final rules it merely provided a restatement and clarification of its longstanding policy that a physician must provide direct supervision of all outpatient incident to therapeutic services regardless whether performed in a hospital off-campus department, on-campus department, or within the four corners of the hospital. The agency states: "We continue to believe that the CY 2009 restatement and clarification made no change to longstanding hospital outpatient physician direct supervision policies as incorporated in prior statements of policy, including the regulations. . . . We believe that the usual enforcement practices of Medicare contractors are appropriate for services furnished in CY 2009. Likewise, the final supervision policies described in this CY 2010 final rule with comment period for hospital outpatient therapeutic services are effective and, therefore, subject to enforcement beginning January 1, 2010. . . . In the case of hospital outpatient therapeutic services furnished on the hospital's campus in 2000 through 2008, we plan to exercise our discretion and decline to enforce in situations involving claims where the hospital's noncompliance with the direct physician supervision policy resulted from error or mistake." CMS states several times in the preamble that the physician direct supervision requirement applies to all hospital outpatient therapeutic services, as all such services are covered incident to physicians' services, unless expressly excepted from the requirement. The agency confirms that outpatient therapeutic services not subject to the physician direct supervision requirement are physical therapy, occupational therapy, speech-language pathology, and end stage renal disease services. In another portion of the preamble the agency describes that because community mental health centers are paid under the OPPS for partial hospitalization services, the physician direct supervision requirement applies. CMS added licensed clinical social workers to the group of nonphysician practitioners (physician assistants, nurse practitioners, clinical nurse specialists, and certified nurse-midwives) who can properly supervise most outpatient therapeutic services within their scope of practice and hospital-granted privileges. Significantly, the agency explained that beginning January 1, 2010, the physician direct supervision requirement for outpatient therapeutic services will be satisfied if the supervising physician is anywhere on the campus of the hospital in which the outpatient service is being performed, including hospital space and nonhospital space, for example, an physician professional office building that is located on the hospital's campus, provided the physician is immediately available to furnish assistance and direction throughout the performance of the procedure. CMS describes in pertinent part: We appreciate the many public comments that we received on the proposed definition of direct supervision for hospital outpatient therapeutic services provided on the campus of the hospital. We acknowledge the comments related to hospital building and campus structures and the physical proximity of physicians' offices and other entities to the hospital department where a particular hospital outpatient service is furnished. We agree with the commenters that allowing the supervising physician to be in nonhospital space on the campus could make it easier for a supervising physician or nonphysician practitioner to respond immediately. Therefore, we believe it would be appropriate to allow the supervising physician or nonphysician practitioner to be located anywhere on the same campus of the hospital, as long as he or she was immediately available to furnish assistance and direction throughout the performance of the procedure. This is consistent with our longstanding definition of 'direct supervision' as it has been applied across settings in terms of the immediate physical presence of the physician and what it means to 'furnish assistance and direction throughout the performance of the procedure.' However, we continue to believe that the supervisory physician or nonphysician practitioner could not be immediately available while, for example, performing another procedure or service that he or she could not interrupt. It would also be neither appropriate nor 'immediate' for the supervisory physician or nonphysician practitioner to be so physically far away on the main campus from the location where hospital outpatient services are being furnished that he or she could not intervene right away." Regarding a supervising physician's qualifications, CMS describes that " the supervisor must be a person who is 'clinically appropriate' to supervise the service or procedure. We believe it is inappropriate for a supervisory physician or nonphysician practitioner to be responsible for patients, hospital staff, and services that are outside the scope of their knowledge, skills, licensure, or hospital-granted privileges."

Under the ASC portion of the final rule, ASCs will receive a 1.2 percent inflation update beginning January 1, 2010. CMS adds 26 surgical procedures to the list of ASC covered procedures, designates six procedures as office-based procedures and thus subject to payment at the lesser of the national office practice expense payment to the physician or the national ASC rate, and temporarily designates an additional 16 procedures as office-based procedures based on coding changes. The final rule also updates the list of device-intensive procedures and covered ancillary services and their rates, consistent with the OPPS update.

For more information regarding the CY 2010 OPPS/ASC final rule, please contact Tom Dowdell (tdowdell@fulbright.com).

CMS Publishes CY 2010 Physician Fee Schedule Final Rule
On October 30, 2009, CMS published its CY 2010 physician fee schedule final rule, and unless otherwise specified the new payment rates and policies will be effective January 1, 2010. The rule is available at www.federalregister.gov/inspection.aspx#special and will be published in the Federal Register on November 25, 2009. Public comments are due by December 29, 2009, 5 PM EST. The final rule finalizes a 21.2 percent reduction in Medicare physician fee schedule payment amounts as a result of application of the sustainable growth rate formula. CMS will phase-in over a four-year period use of data about physicians' practice costs from a new survey, the Physician Practice Information Survey, designed and conducted by the American Medical Association, for purposes of establishing the practice expense relative value units component of the fee schedule. The agency will cease payments for consultation codes other than the G codes that are used for telehealth consultations. CMS also changes the equipment utilization percentage that is used for purposes of setting practice expense relative value units, increasing the current 50 percent standard to 90 percent, phased-in over a four-year period, excepting only expensive therapeutic equipment from the increase. For more information regarding the CY 2010 Medicare physician fee schedule final rule, please contact Tom Dowdell.

Senate Judiciary Committee Holds Hearing on “Effective Strategies for Preventing Health Care Fraud”
On October 28, 2009, the Senate Judiciary Committee held a hearing to examine federal efforts to combat health care fraud. Attendees of the meeting, scheduled by Committee Chairman Patrick Leahy (D-VT), heard testimony from Deputy Secretary Bill Corr from the Department of Health and Human Services (“HHS”), and Assistant Attorney General Tony West from the Department of Justice (“DOJ”). The meeting was held as the Senate prepares to consider health care reform legislation.

During the hearing, the Senate Judiciary Committee learned that HHS and DOJ are using and planning new ways to detect and prevent health care fraud. This includes reviewing what additional powers may be needed from lawmakers to help identify those engaged in health care fraud, and making integrated claims data available to investigators by the end of the year. Further, DOJ plans to hold a summit in early 2010 that will include law enforcement agencies, providers and private insurers.

West indicated that “billions of dollars are lost to Medicare and Medicaid fraud each year,” and stressed the importance of collaboration among government agencies. West outlined the recent successes of programs such as the Health Care Fraud Prevention and Enforcement Action Team (“Heat”), announced by Secretary of HHS, Kathleen Sebelius, and Attorney General Eric Holder in May 2009, and the Medicare Fraud Strike Force launched by the DOJ in 2007. West also acknowledged successes of the Civil Division, the United States Attorneys, the FBI and the Civil Rights Division. To read the full text of West’s testimony, click here. To view the webcast of the hearing, click here. John Kelly

ABA Wins Summary Judgment in Fight Over Red Flags Rule and FTC Delays Enforcement
On October 29, 2009, Judge Reggie B. Walton in the U.S. District Court for the District of Columbia, granted the American Bar Association's ("ABA") motion for summary judgment against the Federal Trade Commission's ("FTC") enforcement interpretation of the Red Flags Rule, enacted in October 2008. The Fair and Accurate Credit Transactions Act of 2003 ("FACTA") directed financial regulatory agencies, including the FTC, to promulgate rules requiring “creditors” and “financial institutions” with "covered accounts" to implement programs to identify, detect, and respond to patterns, practices, or specific activities that could indicate identity theft. FACTA’s definition of “creditor” applies to any entity that regularly extends or renews credit – or arranges for others to do so – and includes all entities that regularly permit deferred payments for goods or services. In addition, any entity which has "covered accounts" and is a "creditor," as defined by the Red Flags Rule, including a health care provider, must establish a compliance program that complies with the Red Flags Rule. A covered account is defined as either (1) an account maintained primarily for personal, family, or household purposes that involves or is designed to permit multiple payments or transactions; or (2) any other account for which there is a reasonably foreseeable risk to customers or the safety and soundness of the financial institution or creditor from identity theft. The FTC took the position that lawyers engaged in the practice of law fall within the definition of "creditor" for purposes of the Red Flags Rule. The ABA filed suit against the FTC, arguing that Congress did not intend for the rules to apply to lawyers who merely bill for services after they are performed but to financial institutions and other businesses that extend credit. Judge Walton agreed with the ABA and granted summary judgment in its favor.

On October 30, 2009, the FTC, in response to a request from Members of Congress, agreed to delay the enforcement of the Red Flags Rule until June 1, 2010. Accordingly, lawyers do not need to meet the new enforcement deadline. The case is the American Bar Association v. Federal Trade Commission, case number 09-cv-1636. The FTC's enforcement policies may be found here and the FTC's identity theft rules may be found here. The FTC press release regarding the delay in enforcement of the Red Flags Rule may be found here. Lori Bellan

GAO Report: FDA Fails to Effectively Oversee Post-Marketing Drug Studies
On October 26, 2009, the Government Accountability Office (“GAO”) released a report analyzing the ability of the Food and Drug Administration (“FDA”) to oversee required post-marketing drug studies. The report concluded that the agency needs to enhance its oversight of drugs approved on the basis of surrogate endpoints. A surrogate endpoint is a laboratory measure or physical sign used as a substitute for a clinical endpoint that reasonably predicts a clinical benefit. FDA approves drugs based on surrogate endpoints through its accelerated approval process. It created the accelerated approval process to expedite the approval of drugs that are designed to treat serious or life-threatening illnesses and are expected to provide meaningful therapeutic benefits compared to existing treatments. The GAO report noted that weaknesses in FDA’s monitoring and enforcement process hamper its ability to oversee effectively post-marketing studies. It noted that the agency has not routinely been reviewing sponsors’ annual submissions on the status of studies in a timely manner and has little in the way of readily accessible, comprehensive data to monitor studies’ progression. The report determined that the agency does not consider such oversight a priority. The GAO report noted that while FDA is implementing initiatives to improve its oversight, it remains too early to determine whether the initiatives will be effective. In addition, the report noted that although FDA has authority to expedite the withdrawal of a drug from the market if a sponsor does not complete a required confirmatory study with due diligence, or if a study fails to confirm a drug’s clinical benefit, it has not specified the conditions that would prompt it to do so and has never exercised this authority, even when such study requirements have gone unfulfilled for nearly 13 years. GAO recommended that FDA clarify the conditions under which the agency would use its authority to expedite the withdrawal of drugs approved based on surrogate endpoints if sponsors either fail to complete required post-marketing studies or if studies fail to demonstrate the clinical effectiveness of the drugs.

In response to GAO’s report, FDA stated that it believes that the accelerated approval program has been very successful and has resulted in the early approval of many drugs for patients with serious or life-threatening illnesses. It acknowledged that there have been some cases where confirmation of the clinical benefit did not occur in a timely manner and said that it considers seriously the lack of progress of completing these trials and works closely with drug sponsors to get the required trials completed. FDA said that each case must be considered individually and that the criteria in the existing regulations and statutory provisions provide the agency with sufficient authority and flexibility to make balanced decisions that protect the program from abuse by sponsors and ensure that patients will continue to have access to needed treatments. The agency noted that it will be difficult to provide further clarification as to when it might use its authority to expedite the withdrawal of a drug approved on the basis of surrogate endpoints but remains committed to closely overseeing required post-marketing trials for drugs approved under the accelerated approval program. To view the full report, entitled New Drug Approval: FDA Needs to Enhance its Oversight of Drugs Approved on the Basis of Surrogate Endpoints (GAO-09-866), please click here. Cori Annapolen Goldberg

Louisiana launches Anti-Medicaid Fraud Initiative
The New Orleans Times-Picayune (10/30, Moller) reports on an announcement from Louisiana health officials that some 700 companies that provide in-home care will "face comprehensive audits...as part of a first-of-its-kind effort to root out fraud and abuse" in companies suspected of Medicaid fraud. Those companies suspected of overbilling Medicaid or engaging in fraud will be investigated and prosecuted by the State Attorney General. Health and Hospitals Secretary Alan Levine said that his agency plans to contract with up to six auditing firms that will review the companies' billing practices to determine if they are providing all the services for which they are billing the government through the Medicaid program. John Kelly

Company and Executives Indicted Based on Off Label Medical Device Promotion
On October 28, 2009, a federal grand jury in the District of Massachusetts returned a sixteen-count indictment against Stryker Biotech LLC, its president, national sales manager and two regional sales managers. The indictment charged the defendants with wire fraud, conspiracy to defraud the U.S. Food and Drug Administration (FDA), and distribution of misbranded medical devices in violation of the Federal Food, Drug and Cosmetic Act (FDCA). The charges arose out of alleged off-label promotion of Class II and Class III orthopedic implant devices marketed to surgeons and surgical staff. The indictment charged that two of the devices were bone morphogenic proteins (OP-1 products) that had been granted a Humanitarian Device Exemption (HDE), rendering them exempt from the normal requirements for premarket approval of a Class III device. A third device allegedly was developed and marketed to be mixed with the OP-1 products even though the company had not sought approval for the mixture; the company had not performed any clinical trial in humans to determine whether the mixture was safe and effective; and the company did not have adequate directions for use because there was no approved labeling.

The indictment charged that the company had been receiving reports of adverse events arising out of the product combination, including inflammation, drainage and impaired wound healing. In some patients, the mixture had allegedly migrated to areas where unwanted bone growth was found and, in some instances, the “unwanted bone growth had to be surgically removed.” According to the indictment, a senior manager had recommended the company send a “dear doctor” letter, warning physicians about the adverse experiences, but that certain defendants disagreed and the company’s president subsequently determined the letter would not be sent. The conspiracy count was based on defendants’ scheme to defraud, allegedly: a) promoting the product mixture; b) distributing written mixing instructions; c) advising surgeons and staff orally how to mix the products; d) misleading surgeons to believe the mixture was only OP-1 product; e) encouraging the sales force through commissions, bonuses, sales quotas, employee reviews, field training and feedback to sell and promote a mixture of the products; f) sponsoring and holding physician meetings to promote the product mixture; g) hiring surgeons as consultants to promote the mixture; h) using a discounted pricing proposal to promote the use of the third product as an “extender” with the OP-1 products; i) preventing disclosure to IRBs, surgeons and surgical staff of information about adverse events associated with the use of the mixture, for the purpose of protecting sales; and j) concealing the promotion by directing the sales force to retrieve the mixing instructions from the hospitals. Defendants were also charged with five counts of wire fraud, based on their alleged scheme to defraud and the use of emails in furtherance of the scheme. The charges of making false statements were based on the company allegedly filing annual reports required by the HDE that misrepresented the number of devices shipped or sold. One of the false statement charges included an allegation that a defendant had provided incorrect and incomplete information to an outside law firm, thereby procuring what the indictment characterized as a “bogus legal opinion” on information that was subsequently provided in the annual report.

A statement issued by the parent company, Stryker Corporation, on October 28, 2009, said the company was disappointed with the action and still hoped to be able to reach a full and fair resolution of the matter, stating that conviction of these charges could result in significant monetary fines and Stryker Biotech’s exclusion from participating in federal and state health care programs. Lisa Thompson