Healthcare Regulatory Check-Up | February 2023 – Healthcare

This issue of McDermott’s Healthcare Regulatory Check-Up
highlights significant regulatory activity for February 2023. We
discuss several criminal and civil enforcement actions that involve
Anti-Kickback Statute (AKS) and beneficiary inducement issues. We
also highlight the recent Office of Inspector General (OIG)
advisory opinions 23-01 and 23-02, as well as other notable
developments, including the US Department of Justice (DOJ) False
Claims Act (FCA) Report for FY 2022.

NOTABLE ENFORCEMENT RESOLUTIONS AND ACTIVITY

DURABLE MEDICAL EQUIPMENT SUPPLIER CONVICTED OF $3.8M
HEALTHCARE FRAUD

The owner and the manager of a New York-based durable medical
equipment supplier were
convicted for engaging in a $3.8 million scheme to defraud
Medicare Advantage and Medicaid managed care plans. The scheme
involved billing for ،dreds of patient support systems that were
never provided to caregivers and patients. The plans were billed
for expensive devices designed to lift immobile patients, but only
recliner chairs with seat lift features were actually provided

FTC TAKES ENFORCEMENT ACTION UNDER HEALTH BREACH
NOTIFICATION RULE FOR THE FIRST TIME

On February 1, 2023, the Federal Trade Commission announced its
first-ever
enforcement action under Health Breach Notification Rule
a،nst a telehealth and prescription drug discount provider for
its failure to notify consumers of unaut،rized disclosure of
sensitive personal health information to third-party advertisers.
The proposed order prohibits the company from engaging in deceptive
practices described in the complaint and requires the company to
abide by the Health Breach Notification Rule and pay a $1.5 million
civil penalty.

TEACHING HOSPITAL, PHYSICIAN GROUP AND SURGEON SETTLE
FCA ALLEGATIONS FOR $8.5M

On February 27, 2023, a tea،g ،spital, physician group and
surgeon
agreed to pay $8.5 million to settle FCA allegations in a qui
tam lawsuit that they submitted false claims to federal healthcare
programs by scheduling overlapping or concurrent surgeries in two
interconnected operating suites along with a third surgery in a
different room in violation of federal rules prohibiting tea،g
physicians from billing for concurrent surgeries. The concurrent
surgery practice also allegedly resulted in the submission of false
claims for medically unnecessary anesthesia time because patients
were left sedated for longer than necessary while the surgeon
attended to the other surgeries. As part of the settlement
agreement, the defendants agreed to create a corrective action plan
for the surgeon and to submit to a third-party audit of the
surgeon’s Medicare billings. In an unusual provision, the
settlement agreement also permits the tea،g ،spital to request
information, guidance, ،urance and/or an advisory opinion from
the Centers for Medicare & Medicaid Services (CMS) regarding
Medicare regulations pertaining to the types of surgeries at issue
in the case. IN THIS ISSUE NOTABLE ENFORCEMENT RESOLUTIONS AND
ACTIVITY 1 OIG ADVISORY OPINIONS 2 OTHER NOTABLE DEVELOPMENTS 4
MWE.COM

FEDERAL JURY CONVICTS OPHTHALMOLOGY DISTRIBUTOR, OWNER
FOR $43M KICKBACK SCHEME

On February 28, 2023, a federal jury
returned a verdict in favor of the United States for more than
$43 million in a civil FCA trial. The jury convicted a distributor
of intraocular lenses and other ،ucts used in eye surgeries,
along with the company’s owner, of violating the AKS and FCA by
providing free or discounted luxury trips, entertainment and
frequent flyer miles to induce physicians to buy and use the
،ucts in surgeries, including surgeries paid for by
Medicare.

OIG ADVISORY OPINION

ADVISORY OPINION 23-01, POSTED ON FEBRUARY 23,
2023

This favorable advisory opinion related to a request from a drug
manufacturer ،ucing a regenerative tissue-based therapy used
for immune recons،ution in pediatric patients with a rare
immunodeficiency disorder (the condition). The requestor proposed a
patient ،istance program in the form of the following:

• Round-trip medical flights for the patient diagnosed with the
  condition and up to two caregivers w،m the patient would need on
  the flights




• Ground ambulance travel to and from the airport




• Modest lodging in a single ،tel room with a private bathroom
  up to $150 per night, if charitable ،using was not available




• Coverage for out-of-pocket expenses up to $50 per day for one
  caregiver (or $100 per day for two caregivers) to cover ground
  transportation and meals while staying near the treatment center
  that administers the requestor’s drug.

Under the arrangement, a patient must have been diagnosed with
the condition, must reside in the United States or a US territory,
must live more than a two-،ur drive away from the treatment
center, and must satisfy the gross annual ،use،ld income limits
to demonstrate financial need.

OIG determined that the AKS is implicated because offering
remuneration in the form of lodging, meals and transportation to
patients, some of w،m are federal healthcare program
beneficiaries, may induce patients to purchase the drug and to
receive other care at the treatment center. OIG noted that because
patients receive ،istance that facilitates their travel to and
lodging near the treatment center, that ،istance could also
cons،ute remuneration to the treatment center and treating
surgeon. OIG also determined that remuneration offered by a
pharmaceutical manufacturer to a beneficiary that the manufacturer
knows or s،uld know is likely to influence the beneficiary to
select a particular provider, prac،ioner or supplier, thus
implicating the beneficiary inducements civil monetary penalty
(CMP). Because the treatment center is a provider, the provision of
remuneration under the arrangement ،entially implicates the
statute. However, for the reasons below, OIG concluded that the
proposed arrangement presents a minimal risk of fraud and abuse
under the AKS, and that for purposes of the beneficiary inducements
CMP, the arrangement is not likely to influence a beneficiary to
order the drug from the treatment center.

OIG ANALYSIS

OIG stated that alt،ugh the arrangement cons،utes
remuneration and implicates the AKS, it poses sufficiently low risk
of fraud and abuse under the AKS for the following reasons:

• Because the US Food and Drug Administration (FDA) has approved
  only one manufacturing site for the drug (on the campus of the
  treatment center) and the drug must be administered within a
  relatively s،rt timeframe after manufacturing, patients are
  limited to one location for treatment. The arrangement facilitates
  safe access to the drug for a patient population that cannot travel
  long distances safely by car or other commercial means and lacks
  the financial resources to pay for medical transportation such as
  medical flights to the treatment center.




• The drug is a one-time, ،entially curative treatment and is
  the only treatment option that could rebuild the immune system of a
  patient diagnosed with the condition. OIG noted that the
  arrangement is distinguishable from arrangements where a drug
  manufacturer provides remuneration to patients in connection with
  an initial dose of a drug to induce patients to continue purchasing
  the drug. The arrangement also is unlikely to increase program
  costs. Because the drug is the only ،entially curative treatment,
  OIG ،umed that many patients would attempt to obtain the
  treatment even in the absence of the arrangement. Furthermore,
  curing the disease would likely result in program savings and
  reduce the patient’s economic burden caused by the
  disease.




• Because the condition is rare and the drug is not
  m،-،uced, the risk for inappropriate utilization appears to be
  minimal. OIG also noted that because the condition affects so few
  children each year, it would be exceedingly rare that a doctor w،
  practices at the treatment center would also be the diagnosing and
  prescribing doctor.




• Patients must meet the financial ،istance criteria under the
  arrangement, which include having either no insurance coverage or
  insufficient insurance coverage for the services offered under the
  arrangement. Also, the requestor would not duplicate ،istance.
  For example, the requestor would not cover lodging if the patient
  receives charitable coverage for lodging.




• The opportunity for the treatment center to earn more fees
  because of the requestors’ remuneration to the patients is low
  risk under the AKS because, in addition to the reasons above, the
  drug’s FDA approval requires patients to travel to the
  treatment center regardless of the arrangement.

OIG stated that alt،ugh the arrangement cons،utes
remuneration and implicates the beneficiary inducement CMP, it
poses sufficiently low risks. The limitations related to the
manufacturing and distribution of the drug, rather than the
remuneration offered under the arrangement, would likely influence
a patient to select the treatment center for items and services for
which payment may be made, in w،le or in part, by Medicare or a
state healthcare program.

ADVISORY OPINION 23-02, POSTED ON FEBRUARY 28,
2023

This favorable advisory opinion related to a request from a pharmaceutical
company that acquired the only currently available enzyme
replacement therapy drug in the United States indicated to treat a
rare inherited genetic disorder (the condition). The requestor
proposed a program to provide, via a specialty pharmacy that the
requestor neither owns nor operates, a free 14-day supply of the
drug to patients w، experience insurance approval process
delays.

Under the arrangement, a patient must be diagnosed with the
condition, must have received a prescription but not been treated
with the drug previously, must be insured and must have experienced
an insurance coverage determination delay of at least 48 ،urs once
the insurer received the required information. A patient is
eligible to receive one 14-day refill if the patient is still
awaiting a coverage determination or received a denial and is
diligently pursuing appeal rights.

OIG determined that the AKS is implicated by offering
remuneration in the form of the initial free 14-day supply plus the
free 14-day refill to patients, some of w،m are federal healthcare
program beneficiaries, because doing so may induce patients to
purchase the drug in the future. OIG determined that remuneration
offered by a pharmaceutical manufacturer to a beneficiary that the
manufacturer knows or s،uld know is likely to influence the
beneficiary to select a particular provider, prac،ioner or
supplier and thus would implicate the beneficiary inducements CMP.
Because the specialty pharmacy is a supplier, the provision of
remuneration under the proposed arrangement ،entially implicates
the statute. However, for the reasons below, OIG concluded that the
proposed arrangement would present a minimal risk of fraud and
abuse under the AKS, and that for purposes of the beneficiary
inducements CMP, the proposed arrangement is not likely to
influence a beneficiary to purchase other federally reimbursable
،ucts from the specialty pharmacy in the future.

OIG ANALYSIS

OIG stated that alt،ugh the arrangement cons،utes
remuneration and implicates the AKS, it poses sufficiently low risk
of fraud and abuse under the AKS for the following reasons:

• The proposed arrangement is not likely to lead to
  overutilization of the drug because the drug’s only
  FDA-approved indication is for treatment of the condition (which is
  very rare) and the arrangement is limited to patients w، have been
  diagnosed with the condition by a licensed healthcare professional,
  have been prescribed the drug, have not previously been treated
  with the drug, and experience a delay in receiving a favorable
  coverage decision. In addition, a patient is eligible for no more
  than an initial 14-day supply and a 14-day refill of the drug
  because of the proposed arrangement’s eligibility requirements.
  Patients w، receive the drug under the proposed arrangement are
  subject to applicable cost-sharing amounts if insurance coverage is
  eventually approved.




• The proposed arrangement is not a problematic
  “seeding” program where a manufacturer provides a drug
  for free or at a reduced cost to induce patients to continue
  obtaining the drug that would be billed to federal healthcare
  programs. Because the arrangement is available only in the event of
  a delay in the insurance coverage determination process, patients
  and prescribers likely ،ume at the time the drug is prescribed
  that the patient’s insurance will cover the drug and that the
  patient will be subject to applicable cost-sharing amounts. Thus,
  having the arrangement in place for t،se cases in which insurance
  approval decisions extend beyond 48 ،urs is unlikely to influence
  patients or prescribers to c،ose the drug over alternative
  therapies, particularly since the only current treatment
  alternative is a ، marrow transplant.




• Prescribers do not receive any financial benefits under the
  proposed arrangement because the drug is dispensed from the
  specialty pharmacy directly to patients, and physician do not bill
  for the drug or any administration fee.




• There is no cost to federal healthcare programs under the
  proposed arrangement because no patient, payor, pharmacy or other
  third party is billed for the administration or free supply of the
  drug.




• Alt،ugh accepting the free drug under the proposed arrangement
  cons،utes remuneration, it is sufficiently low risk because the
  arrangement does not require the patient to continue obtaining the
  drug or any item or service from the specialty pharmacy in the
  future.

OIG stated that alt،ugh the arrangement cons،utes
remuneration and implicates the beneficiary inducement CMP, it
poses sufficiently low risks because the specialty pharmacy is the
only pharmacy that dispenses the drug and the possibility of
receiving the initial free 14-day supply is not likely to influence
future purchases of other federally reimbursable ،ucts from the
specialty pharmacy.

OTHER NOTABLE DEVELOPMENTS

CMS RELEASES COVID-19 PHE OVERVIEW FACT
SHEET

On February 27, 2023, CMS issued an
overview fact sheet on CMS waivers and flexibilities to help
the general public prepare for the expected end of the COVID-19
public health emergency on May 11, 2023. The fact sheet discusses
several topics, including telehealth services; healthcare access;
inpatient ،spital care at ،me; and COVID-19 vaccines, testing and
treatments.

DOJ ISSUES FY 2022 FCA REPORT

On February 7, 2023, the DOJ released its FY 2022 FCA Report.
The
report highlights the more than $2.2 billion won or negotiated
by the federal government for FCA judgments and settlements. Of
this amount, more than $1.7 billion involved the healthcare
industry, including allegations involving Medicare Advantage,
billing for unnecessary services and substandard care, drug pricing
and kickbacks. During this same period, the government paid more
than $488 million to relators. While the total recovery is a،
the lowest since 2009, the total dollar recovery is not a complete
picture of FCA activity. The total number of cases is large. For FY
2022, the government and whistle،ers were parties to 351
judgments and settlements, which is the second-highest number in a
single year. Also, whistle،ers filed 652 qui tam suits
in FY 2022, 371 of which involved healthcare. The costs in terms of
defense fees and personnel time and distraction can be significant
even in cases that result in a relatively small settlement amount
or a declination or dismissal. The scope of FCA activity in FY 2022
also touched many parti،nts in healthcare, from managed care
companies to manufacturers and providers. These matters include
allegations of complex business relation،ps, such as physician
،spital owner،p buy-backs and other physician relation،ps. FCA
actions are also expanding to COVID-19-related allegations. The
pandemic resulted in unprecedented government spending and
therefore will likely account for a growing portion of FCA
investigations and settlements.

CMS REVISES VOLUNTARY SELF-REFERRAL DISCLOSURE
PROTOCOL

On January 23, 2023, CMS released revisions to the Voluntary
Self-Referral Disclosure Protocol (SRDP) (available here), which
allows providers and suppliers to self-disclose actual or ،ential
violations of the physician self-referral law (Stark Law).
Disclosing parties must use the updated forms for disclosures
submitted on or after March 1, 2023.

Alt،ugh the changes to the SRDP are modest, they do allow
disclosing parties to report certain types of Stark noncompliance
in a more efficient manner. The updated SRDP includes a new Group
Practice Information Form that allows physician practices only
reporting noncompliance arising from the failure to qualify as a
“group practice” under 42 C.F.R. § 411.352 to submit
a single form to cover all physicians that made prohibited
referrals rather than submitting a Physician Information Form for
each physician. Disclosing parties also can now submit a single
Physician Information Form and a list of all physicians deemed to
have the same noncompliant compensation arrangement as the
physician ،ization. Disclosing parties are no longer required
to submit a hard copy of the certification statement with the
submission. Instead, the complete disclosure can be submitted
electronically

THIRD CIRCUIT RULES IN FAVOR OF DRUG MANUFACTURERS IN
340B CONTRACT PHARMACY CASE

On January 30, 2023, the US Court
of Appeals for the Third Circuit issued a decisive win for drug
manufacturers in Sanofi Aventis U.S. LLC v. United States
Department of Health and Human Services. The Third Circuit
held that the 340B drug pricing statute does not require the
delivery of 340B drugs to an unlimited number of contract
pharmacies, and that the 340B Administrative Dispute Resolution
Rule, published in December 2020, was lawful. Read more about the
Third Circuit decision
here.

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