AHCA Sues to Enjoin Prohibition on Binding Arbitration


On October 4, 2016 CMS issued its Final Rule entitled “Reform of Requirements for Long Term Care Facilities” which updates the requirements for all SNFs and NFs participating in Medicare and Medicaid. Many of the changes impact quality of care, discharge, behavioral health issues and related issues associated with the general direction of CMS to more value based payment methods evidenced by ACO’s, bundled payments and other initiatives.

One component of the new rule scheduled to go into effect on November 28 of this year prohibits any form of pre-dispute binding arbitration. For several years, many skilled facility operators have included binding arbitration in their admission protocols/documentation supported by the guidance in the Federal Arbitration Act (FAA) ; the latter overrides contrary State laws restricting arbitration, unless the arbitration provision is the result of fraud or otherwise is unconscionable under State law (the CMS position is the latter). Whether a provision in a certain setting is unconscionable under State law has been the subject of extensive litigation. However, most States have allowed pre dispute binding arbitration, some with certain disclosure conditions.

The Final rules would allow post-dispute arbitration but only with certain conditions observed including clear disclosure, site and arbitrator neutrality , joint selection and removal of any condition on continued occupancy . As is pointed out in the rule commentary however, barring pre-dispute binding arbitration essentially guts the extent to which arbitration will be used since it is de facto post dispute when the parties are in conflict.

Significantly, the Rule prohibits binding pre-dispute arbitration in any certified Medicare or Medicaid facility even if the resident in question is private pay.  Facilities that are pure private pay (AL, for example) are exempt.

Since the Final Rule was released, AHCA has initiated a declaratory action and injunction in Mississippi US D CT, seeking to enjoin the Rule.

The primary argument advanced by AHCA for the injunction is that in the absence of express legislative authority permitting a preclusion of binding arbitration , CMS lacks the authority to override the FAA. Legislative action in the securities (eg Dodd Frank) and DOD areas (subcontractors) which allowed an override of the FAA (allowing a bar against binding arbitration) are cited as examples of cases where Congress knows when to allow the FAA to be overridden and specifically does so. Additionally, prior bills before Congress to implement the Final Rule as to arbitration have failed, expressing further intent of Congress in this area favoring binding arbitration.

Perhaps one of the more interesting arguments in the AHCA complaint is that CMS admits it did not perform a Regulatory Flexibility Act (“ RFA”) analysis—each federal regulation is required to be tested by the issuing agency against alternatives that have a lesser economic impact on the sector regulated unless the agency deems the costs of implementation not material. Here CMS estimated the costs to be less than 1% of the revenue per SNF and did not perform an RFA review. Industry is challenging that finding given an expected increase in insurance premiums, legal defense costs of tort claims, and overall implementation costs. In effect, SNFs that prefer to keep pre-dispute binding arbitration risk losing all federal funding—this includes facilities that use binding arbitration only in the case of private pay patients as long as the SNF is Medicare or Medicaid certified.

CMS’ primary arguments in favor of arbitration are associated with the general authority of CMS to issue regulations that protect the health and safety and advance the rights of residents.

The many pros and cons of alternative dispute resolution have been debated extensively and are discussed in the commentary. Whether arbitration is a cost effective form of justice that benefits both sides (and converts costly litigation to funds for care) or imposes on consumers a forum that some feel should be elective, is a matter of perspective.

Ultimately, the road forward will likely be decided on legal not policy grounds.

Three Dozen States Sue Makers of Opioid Addiction Treatment Medications for Antitrust


With opioid abuse continuing to dominate national headlines, manufacturers of opioid overdose medications are facing intense scrutiny over pricing practices that threaten (or those perceived as threatening) public availability of these medications.  In March 2015, for instance, Congress investigated “price hikes” by Amphastar Pharmaceuticals, Inc. (“Amphastar”) for naloxone (sold under the brand name Narcan®), a generic prescription medicine that blocks the effects of opioids and reverses an overdose.  Ranking Members of the House Committee on Oversight and Government Reform and the Senate Committee on Health, Education, Labor and Pensions claimed “[t]he rapid increase in the cost of this life-saving medication in such a short time frame is a significant public health concern” and requested drug profit and cost information from Amphastar “to evaluate the underlying causes of recent increases in the price.”

Late last month, meanwhile, Attorneys General from New York, California, Washington D.C., and 32 other states (the “Plaintiff States”) sued Reckitt Benckiser Pharmaceuticals, Inc., n/k/a Indivior PLC (“Reckitt”), and MonoSol Rx, alleging the companies colluded and together engaged in an unlawful scheme to preserve their monopoly profits from sales of the opioid addiction drug Suboxone® by preventing or delaying less expensive generic versions from entering the market.  See Complaint, State of Wisconsin et al. v. Indivior Inc., et al., (E.D.P.A.) (“Indivior”).  In a 280-paragraph complaint filed in the Pennsylvania federal court in Philadelphia, the Plaintiff States in Indivior alleged the Defendants kept generic Suboxone off the market through “product hopping,” REMS violations, and by filing a sham citizen petition with the FDA to delay would-be competitors.  Indivior Complaint ¶ 3.  (These allegations are discussed in more detail below.)  As a consequence, “consumers and state governments have been limited in their treatment options for opioid addiction” and allegedly are “forc[ed] to pay more for Suboxone than they otherwise would in a competitive market.”  Id. ¶ 7.

While the public spotlight on opioid abuse makes the Indivior case one of intense interest, allegedly anticompetitive conduct meant to thwart generic competition has formed the subject of a growing number of pharmaceutical antitrust suits.  Such conduct, including “product hopping” or “product switching,” has piqued the interest (and frustration) of government agencies (e.g., Federal Trade Commission) and industry participants and stakeholders alike.

Plaintiff States’ “product hopping” allegations assert the Indivior Defendants developed and sought approval to market Suboxone in a sublingual film in 2008 ahead of the expiration of Suboxone’s orphan drug exclusivity period in 2009.  Indivior Complaint ¶¶ 55, 57.  The reformulated dosage form, they claim, was intended to defeat the substitutability of generic Suboxone (buprenorphine/naloxone tablets).  Id. ¶ 69.  Defendants allegedly drove prescribers and patients to Suboxone film (i.e., a “hard switch”) through a “campaign to convert the market on unfounded safety concerns about the Tablets, including concerns regarding accidental exposure to children.  These concerns were alleged to be a sham designed to convince prescribers and payors that the Suboxone Film provided increased safety and efficacy over the Tablets.”  Id. ¶ 73.

In addition to alleged “product hopping,” Reckitt also is accused of manipulating the Risk Evaluation and Mitigation Strategy (“REMS”) program for Suboxone.  Id. ¶¶ 93-97.  REMS are risk management plans required by the U.S. Food and Drug Administration (“FDA”) pursuant to the Food and Drug Administration Amendments Act of 2007 (“FDAAA”).  REMS use risk minimization strategies beyond professional labeling to ensure the benefits of certain higher-risk prescription drugs outweigh their risks.  The Plaintiff States allege FDA approved a REMS for Suboxone tablets in 2011 and, in early 2012, directed Reckitt to cooperate with the Buprenorphine Products Manufacturers Group (comprised of companies filing ANDAs for generic Suboxone tablets) to submit a single, shared REMS.  Reckitt supposedly “feigned cooperation with the shared REMS development process and used deceptive tactics for months to hide its true intent, which was to delay the generic industry from obtaining ANDA approvals.”  Id. ¶ 94.  Foley & Lardner previously reported on such REMS abuse and delay tactics in analyzing the federal CREATES Act and PRICED Act.

Additionally, the Plaintiff States allege, “[t]o gain more time to complete its product hop scheme, Reckitt engaged in another delay tactic by filing a citizen petition with the FDA.”  A citizen petition is a request to FDA to issue, amend, or revoke a regulation or order or take or refrain from taking any other form of administrative action.  See 21 C.F.R. § 10.30.  Under the Food and Drug Administration Safety and Innovation Act of 2012, FDA must (among other things) respond to certain citizen petitions within 150 days, down from 180 days under Section 505(q) of the FDAAA.

To fend off generic competition, the Plaintiff States claim “Reckitt filed a citizen petition asking the FDA to withhold approval of the ANDAs for generic Suboxone Tablets unless . . .  the FDA had determined whether Reckitt had discontinued Suboxone Tablets for safety reasons.”  Indivior Complaint ¶ 102.  Reckitt allegedly “used information gained from the generic manufacturers through the shared REMS negotiation to form its citizen petition” and “did not disclose these alleged safety concerns about Suboxone Tablets to the generic manufacturers during the shared REMS negotiation process.”  Id. ¶ 104.  The net effect of the Defendants’ conduct, according to the Plaintiff States, is that “Reckitt avoided, and continues to avoid, automatic substitution of AB-rated generics under state generic substitution laws and, therefore, has limited, and continues to limit, competition with generic substitutes for Suboxone Tablets.”  Id. ¶ 120.

The Amphastar-naloxone investigation and Indivior are but the latest in a string of high-profile enforcement actions aimed at rooting out allegedly anticompetitive or illicit drug pricing schemes.  Notably, however, increased second-guessing and government interference with pharmaceutical pricing strategies unintentionally may disrupt the market forces driving down cost in many product markets.  Indeed, Indivior is a case study of the tension between public health policy, regulatory oversight, and business strategies to capitalize on high-demand drugs.  Foley & Lardner will monitor Indivior and report on similar pricing actions going forward.

Hospital Short-Stay Review Ban Lifted by CMS


Effective September 12, 2016, the Centers for Medicare & Medicaid Services (CMS) lifted the temporary ban on patient status reviews of hospital short stays for Medicare beneficiaries. Those reviews are currently conducted by the Beneficiary and Family Centered Care (BFCC) Quality Improvement Organizations (QIOs).1 As of October 1, 2015, the responsibilities of the BFCC-QIOs include conducting the first-line medical reviews of short-stay inpatient hospital claims by acute care inpatient hospitals, long term care hospitals, and inpatient psychiatric facilities to determine the appropriateness of Medicare Part A (Part A) payments under the so-called “two-midnight rule.”

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Update: Arkansas (Again!) Medical Board Approves Telemedicine Rules


Author’s note: Yesterday’s post included a reference to an “originating site” definition under Regulation 38.  This post below corrects that reference, noting how the proposed regulation does not change the statutory definition of originating site.

The Arkansas State Medical Board on Thursday voted unanimously to pass Regulation 38 establishing key definitions for telemedicine practice in the State. The new regulation imposes specific Board of Medicine requirements for practicing telemedicine, and is to be read in connection with Regulation No. 2(8) (valid doctor-patient relationships). However, neither regulation addresses the definition of “originating site” under Arkansas Code 17-80-118 or how the Board would apply it to telemedicine consults where the patient is located at his or her home. Continue reading this entry

California Targets Surprise Medical Bills, Follows on the Heels of New York and Florida


Governor Brown approved a new law last Friday that limits patient exposure to so-called surprise medical bills.  AB 72 caps the cost-sharing obligations of patients who unexpectedly receive care from non-contracted providers during or because of a stay at an in-network facility.  The law limits cost sharing for covered services to in-network amounts unless the patient consents in writing to receive care from a noncontracting provider.  The law passed the California legislature with broad bipartisan support.

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