Healthcare Law Update: June 2017

Medicaid

Florida's Medicaid Third-Party Liability Act Pre-empted by Federal Law

By Eddie Williams

In Gallardo v. Dudek, Sec. of Florida Agency for Health Care Administration, No. 4:16cv116-MW/CAS, 2017 WL 1405166 (N.D Fla. April 18, 2017), the federal district court, by order on summary judgment, declared that the Medicaid Act prohibits the Florida Agency for Health Care Administration (AHCA) from seeking reimbursement of past Medicaid payments from portions of a recipient's settlement funds that represent future medical expenses. In addition, the court declared that the Medicaid Act prohibits AHCA from requiring a Medicaid recipient to affirmatively disprove the formula-based allocation under §409.910(17)(b), Florida Statutes, with clear and convincing evidence in order to successfully overcome the allocation. Although the plaintiff's lawsuit was valued at approximately $20 million, the case eventually settled for $800,000. AHCA asserted a lien against that cause of action for the amount it had expended for the plaintiff's past medical expenses: $862,688.77. Pursuant to the formula-based allocation under Florida's Medicaid Third-Party Liability Act, AHCA sought to recover approximately $300,000 from the settlement funds that represented both past and future medical expenses. The court ruled that the federal Medicaid Act, particularly the anti-lien and anti-recovery provisions, limits a state's powers to pursue recovery of funds paid on the recipient's behalf. Further, the limited exceptions to these provisions only allow AHCA to satisfy its lien from the portion of settlement that represents compensation for past medical expenses. The plaintiff also argued that Florida's Medicaid Third-Party Liability Act conflicts with and is pre-empted by federal law. The court agreed with this argument where Medicaid recipients are required to affirmatively disprove the formula-based allocation with clear and convincing evidence to successfully overcome it. The court ruled that "an irrebuttable, one-size-fits-all statutory presumption that a pre-determined percentage of the recipient's recovery constitutes payment for medical care" does not comply with the federal Medicaid Act.

Enforcement

Drug Manufacturer's Alleged Misrepresentations Not Material to Public Payment

By Nathan Adams

In United States ex rel. Petratos v. Genentech, Inc., 855 F. 3d 481 (3d Cir. 2017), the court of appeals ruled that a qui tam relator failed sufficiently to allege that a drug manufacturer made misrepresentations that were material to the government's payment decision, as required to state a False Claims Act (FCA) claim. Relator Gerasimos Petratos was head of healthcare data analytics for Genentech. He alleged that his former employer suppressed data that caused doctors to certify incorrectly that Avastin was "reasonable and necessary" for certain at-risk Medicare patients; however, the relator disclosed this data to the U.S. Food and Drug Administration (FDA) and Department of Justice (DOJ) in 2010 and 2011. The FDA continued its approval of Avastin for the at-risk populations, whom Petratos claims the data adversely affects, and added three more approved indications for the drug. DOJ took no action against Genentech and declined to intervene in this suit. As a result, the court ruled that the alleged misrepresentations were not material to the government's payment decision and would have paid the claims with full knowledge of the alleged noncompliance. The court of appeals affirmed dismissal of the complaint.

Government Forced to Replead FCA/AKS Violations as to Each Defendant

By Nathan Adams

In United States of America v. D.S. Medical, LLC, No. 1:12CV00004 AGF, 2017 WL 2269006 (E.D. Mo. May 23, 2017), the court denied the government's motion for partial summary judgment in a qui tam action under the FCA for purported violations of the Anti-Kickback Statute (AKS). The operative complaint claims that the four defendants submitted or caused to be submitted to Medicare and Medicaid false claims for reimbursement for Dr. Sonjay Fonn's services in performing spinal surgeries at St. Francis Medical Center (SFMC) between December 2008 and March 2012, and for the purchase of implant devices used in those surgeries. According to the complaint, Dr. Fonn would select the devices he would use during surgeries at SFMC based, in part, on the fact that a company formed and created by his fiancée, D.S. Medical (DSM), would serve as the local distributor. DSM would then be paid commissions by the manufacturers, and DSM and Dr. Fonn's fiancée would share those commissions with Dr. Fonn. The court dismissed the complaint because the government's requested findings lumped all defendants together, when it is clear that not each proposed factual finding has been established as to each defendant, and because the civil penalties faced by defendants are on a per claim basis, making more precision important. The court denied the government's motion without prejudice to the government filing a new one.

HIPAA

Three Reminders About Refill Reminder Compliance

By David Glynn and Shannon Hartsfield

Specialty pharmacies, drug manufacturers and other members of the healthcare industry involved in refill reminder programs should be mindful that, while such programs are expressly permitted under HIPAA privacy rules, HIPAA does not endorse an "anything goes" approach. The U.S. Department of Health and Human Services (HHS) Office for Civil Rights (OCR) has made it clear that paying physicians and pharmacies to remind patients about refills of drugs they are currently taking is generally permissible under the HIPAA Privacy Rule. However, in addition to meeting the HIPAA requirements for such programs, companies must remember OCR's caveat that even a HIPAA-compliant program must adhere to the AKS, along with other fraud and abuse laws and regulations. Here are three things to keep in mind when structuring these programs:

First, if the pharmacy is getting paid to send reminders, it either needs to meet HIPAA's marketing exception or obtain written patient authorization. HIPAA generally requires a patient's written authorization if a healthcare provider or other covered entity will be using and disclosing protected health information (PHI) for "marketing," which includes communications about a drug that encourages the recipient to purchase or use the drug (i.e., refill reminders). If the pharmacy is not paid to send the refill reminder, it is not considered marketing under HIPAA. Otherwise, the pharmacy either needs the patient's written permission to make the call (which conforms to HIPAA's requirements for written authorizations), or the arrangement must meet HIPAA's marketing exception.

Second, HIPAA's exception for refill reminders restricts what a pharmacy can say and how much it can be paid. If a pharmacy or other covered entity gets paid for sending refill reminders, the arrangement must comply with certain parameters such as, without limitation, the following.

• The reminder must be about a drug or biologic currently prescribed for the individual; i.e., a refill, not a new prescription, or another drug or formulation of the current drug.
• The reminder can relate to generic equivalents of the prescribed drug, information about taking the prescribed drug as directed, discussions about a prescription that lapsed within the previous 90 calendar days or a delivery system for the drug, such as an insulin pump.
• The payment for sending the reminder may cover only the reasonable direct and indirect costs related to the refill reminder, including labor, materials and supplies, and capital and overhead costs.

Notably, refill reminders required under FDA-mandated Risk Evaluation and Mitigation Strategy (REMS) programs do not need to meet these requirements.

Third, the arrangement still has to comply with the AKS and other laws, such as the Stark Law. A manufacturer or healthcare provider is not necessarily in the clear from a regulatory perspective just because a refill reminder is permitted under HIPAA. Where a manufacturer pays a pharmacy to send refill reminders, the government will likely conclude that it implicates the AKS because one purpose of the payment is to induce the pharmacy to recommend or arrange for the purchase of its product. The HHS Office of Inspector General (OIG) has expressed a longstanding concern with payments to pharmacists for "recommending activity," due to its concern that "[i]n an era of aggressive drug marketing . . . patients may now be using prescription drug items, unaware that their physician or pharmacist is being compensated for promoting the selection of a specific product." OIG Special Fraud Alert (Dec. 19, 1994). In light of this, consider these points when structuring refill reminder arrangements.

• Refill reminder arrangements should be structured to meet the personal services safe harbor, which requires, among other things, that the compensation be set in advance, and not fluctuate with the volume or value of any referrals generated by the arrangement.
• The DOJ has made its position clear through a number of recent FCA cases and settlement agreements that refill reminder programs and other services that are paid for through discounts do not, in the DOJ's view, qualify for protection under the discount safe harbor or the personal services safe harbor.
• Because no two arrangements are the same, it is wise to consult available advisory opinions (e.g., Advisory Opinion 11-17 addresses a refill reminder), other OIG guidance and relevant cases.

OCR has provided substantial guidance, including "frequently asked questions" on its website, that provide additional guidance on refill reminder programs. Specialty pharmacies, manufacturers and others wishing to structure refill reminder programs in a compliant manner should proceed with caution and with the advice of counsel.

Antitrust

Noerr-Pennington Doctrine Does Not Defeat Sherman Act in Event of Deception

By Nathan Adams

In Amphastar Pharmaceuticals, Inc. v. Momenta Pharmaceuticals, Inc., 850 F. 3d 52 (1st Cir. 2017), the court ruled that the mere fact that defendants brought patent infringement litigation resulting in an injunction against the plaintiffs did not immunize them from antitrust liability under the Noerr-Pennington doctrine, where the defendants allegedly made misrepresentations to the U.S. Pharmacopeial Convention (USP), a private standard-setting organization charged with ensuring the quality of drugs. According to the complaint, the defendants knowingly failed to disclose to the standard-setting body that a proposed method for testing generic enoxaparin might be covered by Momenta Pharmaceutical's pending patent application. The USP adopted the method, and the FDA required the plaintiff to comply with it. The plaintiff filed this Sherman Antitrust Act case seeking damages for profits lost during the pendency of the injunction. The district court dismissed the complaint under the Noerr-Pennington doctrine, which immunizes good faith petitioning of government entities from antitrust liability. The court of appeals reversed based on the alleged misrepresentation and remanded.

Deceptive Trade Practices

Pre-emption of State Failure-to-Warn Claims Left for Jury to Decide

By Nathan Adams

In In Re Fosamax (Alendronate Sodium) Products Liability Litigation, 852 F. 3d 268 (3d Cir. 2017), the court of appeals reversed summary judgment for the manufacturer on various state law failure-to-warn claims in connection with the manufacturer's failure to add a warning of risk of atypical femur fractures to the FDA-approved label for its osteoporosis drug. Merck Sharp & Dohme (Merck) made the FDA aware, prior to September 2010, that the drug could inhibit microdamage repair by preventing bone resorption at the sites of the damage and suggested adding warnings to both the "Warnings and Precautions" and the "Adverse Reactions" sections of the label to address atypical femoral fractures. In 2009, the FDA approved the addition of "low energy femoral shaft and subtrochanteric fractures" to the Adverse Reactions section, but rejected Merck's proposed addition to the Warnings and Precautions section. As part of this multidistrict litigation, plaintiffs insist that the FDA was objecting only to Merck's use of the imprecise and potentially misleading term "stress fractures" as part of the label, and would have approved a proposed warning that specifically discussed the risk of atypical femoral fractures, whereas Merck insists that the letter demonstrates that the FDA did not believe there was sufficient evidence of a causal link between drug use and atypical fractures, and would have rejected any proposed warning relating to such a risk. The issue is critical because if there is "clear evidence" that Merck's interpretation is correct, it pre-empts all state law claims. The court of appeals decided that this is a question of fact for the jury to decide.

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.