News & Insights


February 4, 2019

Health Headlines – February 4, 2019

HHS Proposes Rule Challenging Drug Manufacturer Rebates to PBMs and Payors – On January 31, 2019, HHS released a proposed rule that would modify the scope and reach of the federal Anti-Kickback Statute discount safe harbor in an effort to eliminate many pharmacy benefit manager (PBM) rebates and reduce patient drug costs.  Specifically, the proposed rule would make clear that the Anti-Kickback Statute’s discount safe harbor does not protect manufacturer rebates to PBMs or payors, but would create new safe harbors for rebates passed through to the point-of-sale and for fixed payments for PBM services.  If adopted, the proposed rule could cause major changes to the current drug sale and distribution system.

More details about the proposed rule can be found in a King & Spalding Client Alert, available here.

OIG Issues Advisory Opinion Giving the Green Light to a Pharmaceutical Manufacturer’s Plan to Provide Limited Functionality Smartphones to Financially Needy Patients for Adherence Data Monitoring – On January 24, 2019, OIG issued Advisory Opinion No. 19-02, analyzing a proposed arrangement in which a pharmaceutical manufacturer would loan smartphones to patients who meet certain poverty level requirements in order to provide the patients the ability to use the manufacturer’s antipsychotic Digital Medicine (DM Drug).  OIG analyzed the proposed arrangement under both the Beneficiary Inducements Civil Money Penalties provision (CMP Law) and the Federal Anti-Kickback Statute (AKS). The agency concluded that the proposed arrangement would satisfy all the criteria for the CMP Law exception for promoting access to care, and although the proposed arrangement could potentially generate prohibited remuneration under the AKS, OIG would not subject the requestor to administrative sanctions. A copy of Advisory Opinion No. 19-02 can be found here.

The DM Drug at issue is an FDA approved drug “which consists of a tablet of the [d]rug embedded with an ingestible sensor.” Once ingested, the sensor gives off an electrophysiological signal detected by a patch worn on the patient’s stomach. The patch records when the medication is taken and other indicators such as the patient’s rest patterns and activity. The information stored on the patch can only be viewed when the data is transferred via a Bluetooth® connection to a smartphone application (the App). “With the patient’s consent, the patient’s health care provider(s) and caregiver(s) can access this information through web-based portals.”

Because the information can only be accessed via a smartphone App, the manufacturer proposes loaning a device with highly limited functionality (a Loaner Device) to patients who: “(1) have a prescription for the DM Drug for on-label use; (2) meet any applicable prior-authorization or therapeutic-step-edit requirements required by the patient’s insurer; (3) have an annual income below a specific percentage of the Federal poverty level; (4) do not already possess a device capable of running the App; and (5) are United States citizens or legal permanent residents.” The manufacturer would contract with a specialty pharmacy who would provide the Loaner Device to eligible patients. This arrangement would not be advertised to patients; instead, the prescribers would screen potential candidates and complete the enrollment forms on behalf of the patients. The prescribers would not receive any additional compensation for prescribing the DM Drug as opposed to any other treatment and would not be separately reimbursed for onboarding the patient. The Loaner Device would come preloaded with the App and the ability to make domestic calls (necessary for the patient to access support for the DM Drug system). All other features of the phone would be permanently disabled. The Loaner Device would only be available for the duration of the DM Drug therapy, which the manufacturer estimates to be 8-12 weeks. At most, a patient could only maintain the Loaner Device for two, 12-week periods.

OIG found that the “Loaner Device would provide something of value to the patients receiving it and would be remuneration to the patient.” However, OIG then went on to find that the proposed arrangement would satisfy all of the criteria of the exception for promoting access to care to the CMP Law.  It would promote access to care for patients who otherwise would not be able to benefit from the DM Drug and also poses a low risk of harm by “(i) being unlikely to interfere with clinical decision making, (ii) being unlikely to increase costs to Federal health care programs or beneficiaries through overutilization or inappropriate utilization, and (iii) not raising patient safety or quality-of-care concerns.” In light of the above, OIG concluded it would not subject the manufacturer to sanctions in connection with the proposed arrangement under either the CMP Law or the AKS.

The Advisory Opinion, of course, is limited in scope to the proposed arrangement and may not be relied on by any persons other than the requestor. Nevertheless, the opinion provides a good indication of how OIG might respond to similar requests from other pharmaceutical manufacturers in the future.

Reporter, Amy L. O’Neill, Sacramento, CA, +1 916 321 4812,

HHS Argues It Cannot Be Sued by Patients for Hospitals’ Admission Decisions – In a motion filed last week in Alexander v. Azar, No. 3:11-cv-1703-MPS (D. Conn.), HHS argued that it cannot be sued by Medicare beneficiaries objecting to a hospital’s decision to admit them as inpatients instead of placing them under observation. The plaintiffs in the case, a certified class of Medicare beneficiaries, sued HHS in the United States District Court for the District of Connecticut, claiming due process violations resulting from their inability to appeal hospitals’ decisions to provide outpatient observation care rather than admit them as inpatients. Plaintiffs allege that they incur higher out-of-pocket costs when placed in observation because they have co-payment responsibilities under Part B that they would not incur if they were admitted as inpatients. Inpatient care is covered by Part A. Although Medicare inpatients may have deductible responsibilities, Part B co-payments and charges for non-covered services, like self-administered drugs, can sometimes be higher than a patient’s Part A financial responsibility. Plaintiffs are seeking an injunction requiring HHS to establish administrative review procedures to appeal a hospital’s decision to place a Medicare beneficiary on observation status.

HHS has moved to dismiss the plaintiffs’ lawsuit for lack of standing, arguing that the plaintiffs’ alleged injuries are not traceable to HHS’s failure to provide administrative review procedures and an injunction would be unlikely to redress their alleged injuries. HHS reasons that “there is a fundamental mismatch between the Plaintiffs’ remaining cause of action and the defendant they have chosen to sue” because HHS lacks the power to “formally admit” a beneficiary to a hospital or retroactively reverse a hospital’s inpatient admission denial. HHS also claims that the plaintiffs failed to establish standing because they did not allege that they would have used an administrative review process if it had been available. Finally, HHS argues that the plaintiffs’ claims are moot because there is currently no protected property interest in inpatient admission arising from the Two-Midnight Rule, which is the current standard for inpatient admission.

A copy of the HHS memorandum in support of its motion to dismiss is available here.

Reporter, J. Gardner Armsby, Atlanta, +1 404 572 2760,

Colorado House Passes Hospital Expenditure Transparency Bill and Considers Free Standing Emergency Department Licensure – The Colorado House of Representatives recently passed a bill requiring Colorado hospitals to submit information regarding uncompensated care and certain expenditures to the Department of Health Care Policy and Financing (DHCF).  The bill tasks DHCF and the Colorado Healthcare Affordability and Sustainability Board with compiling information from publicly-available resources and the information submitted by hospitals to create an annual hospital expenditure report.  The final hospital expenditure report would be presented to the governor and certain general assembly committees and would be posted to a publicly-available website.

If passed, hospitals will be required to submit cost reports, annual audited financial statements, and a report containing data such as total number of available beds, inpatient statistics by major payor group and by setting, outpatient utilization statistics, gross charges, operating expenses, staffing information, names and transaction price of acquired hospitals, physician groups, and physician practices, and a balance sheet.  Hospitals would provide information for fiscal years 2011-12 through 2018-19 in the first round of submissions.  If passed, the bill would take effect on August 2, 2019, and DHCF would submit its first report to the governor and certain committees by January 15, 2020.

The Colorado House of Representatives is also considering another bill that would create a freestanding emergency department license.  Colorado freestanding emergency departments are licensed as community clinics with emergency departments.  The new freestanding emergency department license would be issued to hospital-owned or affiliated emergency departments that are more than 250 yards from the hospital’s main campus, as well as to independent emergency departments not attached to a hospital or situated within 250 yards of a hospital. 

If passed, any facility that would like to operate as a freestanding emergency department would have to submit an annual application for licensure starting on December 1, 2021.  Licensed community clinics or community clinics serving an underserved population would be able to request a waiver from the Department of Public Health.  The State Board of Health would set the licensure requirements, fees, and safety standards.

Reporter, Taylor Whitten, Sacramento, +1 916 321 4815,

Also In the News

ACO Application Period Now Open for July 1, 2019 Start Date for MSSP Participation – The application period is now open for ACOs that desire to participate in the Medicare Shared Savings Program (MSSP) under either the BASIC or ENHANCED Tracks with a start date of July 1, 2019.  Applications may be submitted until February 19, 2019, at 12:00 p.m. (noon) ET.  Sample applications and more information are available here, but ACOs must apply to the MSSP using the online ACO Management System (ACO-MS), which is available here.

28th Annual King & Spalding Health Law & Policy Forum – Please join us on March 18, 2019 for a one-day conference at the St. Regis Hotel in Atlanta focusing on the latest legal and political developments affecting the healthcare industry.  The keynote speaker will be Dr. Sanjay Gupta.  A multiple Emmy® award winning chief medical correspondent for CNN, Gupta is a high-profile practicing neurosurgeon who plays an integral role in CNN’s reporting on health and medical news for all of CNN’s shows domestically and internationally and contributes to  King & Spalding partner Sally Yates will be the featured speaker.  Yates is the former Deputy Attorney General and Acting Attorney General of the United States.  For registration information, please click here