Healthcare Law and Policy Blog : Healthcare Lawyer & Attorney : Foley Hoag Law Firm : Washington D.C., Boston

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CMS issued the End-Stage Renal Disease (ESRD) Prospective Payment System CY2011 Final Rule [.pdf] yesterday, offering 923 pages of regulatory reading for those who had waited weeks (and months) for its issuance.  The ESRD Final Rule will be published in the Federal Register on August 12, 2010. 

The final rule offered some good news, in particular, for the pharmaceutical industry, on the issue of oral-only drugs. While CMS determined that the definition of “renal dialysis services” includes ESRD-related oral-only drugs, CMS decided to delay paying for those drugs under the ESRD PPS bundle until Jan. 1, 2014.

The ESRD Final Rule establishes a “bundled” prospective payment system (PPS), which will be effective January 1, 2011, for dialysis services, such as dialysis treatments and supplies, certain ESRD-related drugs, and ESRD-related clinical laboratory tests, for Medicare beneficiaries with ESRD. 

Under the ESRD PPS bundle, CMS will make a single prospectively determined bundled payment to ESRD facilities beginning January 1, 2011 that takes into account patient and facility characteristics through case-mix and other adjustments. As proposed, the bundled payment is to be applied on a per treatment basis. CMS has set the base payment rate at $229.63 for each dialysis treatment. CMS will also apply a transition adjustment to payments to all ESRD facilities in 2011, reducing all payments to ESRD facilities in CY 2011 by 3.1 percent.

In addition to the ESRD PPS Final Rule, CMS also issued yesterday the ESRD Quality Incentive Program (QIP) Proposed Rule [.pdf] on July 26, 2010. Comments may be submitted on the QIP Proposed Rule to CMS up until Sept. 24. A final rule on the QIP will be published later this year. 

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Last week FDA and CMS announced a new Memorandum of Understanding between the two agencies (though it was approved by CMS on June 18 and by FDA on June 25).  According to the MOU, the "Federal Partners" will work together to "promote initiatives related to the review and use of FDA-regulated drugs, biologics, medical devices, and foods, including dietary supplements."

In essence, the MOU appears to authorize expanded information sharing between the two agencies.  The key goal, in my view is to

build infrastructure and processes that meet the common needs for evaluating the safety, efficacy, utilization, coverage, payment, and clinical benefit of" medical products.

Upon reading the MOU, a partner here at Foley recalled a similar initiative announced in 2005 [.pdf] (see action 4).  In his view, although the 2005 announcement did contain proposals to institute parallel CMS and FDA review (similar in tone to what appears to be the tenor of this 2010 agreement) the most important program to evolve from the 2005 initiative is the Sentinel Initiative.  In other words, the ability of CMS and FDA to collaborate on post-market surveillance, which is just now getting off the ground with pilot programs.

Here, while the goal is again collaboration and information sharing between the two agencies, there is also significant focus on protecting trade secrets during the information sharing process.  While the actual CMS-FDA collaborative process is not ironed out in the MOU (and, in fact, is specifically left to a meeting which is destined to take place 30 days after release of the MOU), the two agencies are very clear in their commitment to safeguarding confidential information.  The entire substance of the MOU, in fact, from section 3 on, is about processes to ensure no trade secrets or confidential business information are leaked.

This seems to be an attempt to assuage one of industry’s biggest fears – one which has emerged in full force during FDA’s Transparency Task Force discussions.  Perhaps it is no accident that this MOU was signed a mere month after the release of the FDA’s Transparency Task Force Report on FDA's Proposed Public Disclosure Policies [.pdf].  (See my blog post, "FDA Transparency Task Force Releases Draft Recommendations on FDA's Public Disclosure Policies").

Whatever the end result of this "new" FDA-FDA collaboration – parallel FDA/CMS review, new pre-market collaborations, an enhancement of the Sentinel post-market information sharing processes, or maybe nothing given industry's historic reluctance to see the two agencies collaborate at all – the message is clear: the agencies are aware of the importance of protecting confidential information.

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Yesterday, HHS issued a notice of proposed rulemaking (NPRM) modifying the HIPAA Privacy, Security, and Enforcement Rulespursuant to the HITECH Act (the health information technology portion of the 2009 stimulus package, also known as the American Recovery & Reinvestment Act).

[Note that when I refer to the HIPAA Privacy, Security, and Enforcement Rules, I mean the following: the Standards for Privacy of Individually Identifiable Health Information (the “Privacy Rule”); the Security Standards for the Protection of Electronic Protected Health Information (the “Security Rule”); and the Compliance and Investigations, Imposition of Civil Money Penalties, and Procedures for Healings (the “Enforcement Rule”) all issued under HIPAA].

The proposed modifications in the NPRM are intended to implement recent amendments made under the HITECH Act and to “improve the workability and effectiveness” of the three HIPAA Rules.  In the NPRM, HHS describes section-by-section how the proposed regulatory changes would implement provisions of the HITECH Act.  In addition, HHS proposes technical corrections and other modifications to enhance the effectiveness of the HIPAA Rules.

In summary, the proposed changes include:

• Extending to business associates many of the requirements in the Privacy and Security Rules;
• Establishing new limitations on the use and disclosure of protected health information for marketing and fundraising purposes;
• Restricting the disclosure of protected health information (“PHI”) to health plans;
• Expanding individuals’ rights to access their information; and
• Expanding HIPAA’s enforcement of privacy and security provisions.

Although most of the provisions of the HITECH Act already became effective February 18, 2010, HHS recognized that it will be difficult for covered entities and business associates to comply with the statutory provisions until after HHS has finalized its changes to the HIPAA Rules.  As such, HHS intends to provide covered entities and business associates with 180 days beyond the effective date of the final rule to come into compliance with “most of the rule’s provisions.” 

This proposed 180-day compliance period, however, will not apply to the HIPAA Enforcement Rule “because such provisions are not standards or implementation specifications,” and thus, these provisions will be in effect and apply at the time the final rule becomes effective or as otherwise provided.

The NPRM will be published in the Federal Register on July 14.  Stakeholders will have 60 days from the date of publication to submit comments on the proposed rule to HHS.

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On June 18, the Office of the National Coordinator for Health Information Technology (ONC) issued a final rule [.pdf] establishing a temporary certification program to test and certify health information technology (HIT), including electronic health records (EHRs). 

This temporary certification program will be used to ensure that “Certified EHR Technology” is available for adoption by eligible professionals, eligible hospitals and critical access hospitals (CAHs) for purposes of qualifying for incentives under the Health Information Technology for Economic and Clinical Health (HITECH) Medicare and Medicaid EHR Incentive Programs, as established under the American Recovery and Reinvestment Act of 2009 (stimulus bill).

The final rule describes the process for selecting organizations to test and certify Complete EHRs and EHR Modules as Certified EHR Technology.   

ONC will address the specific standards, implementation specifications, and certification criteria required of Certified EHR Technology in a separate final rule to be released in the near future.  

ONC expects authorized organizations will be testing and certifying EHRs by the end of this summer, which will allow for certified EHR products to be on the market this fall.

As more EHR technology products and systems become widely available, adoption of HIT will ideally accelerate as providers and hospitals are able to qualify for federal incentives.

Overview

In the final rule, ONC describes how an organization can become an ONC-Authorized Testing and Certification Body (ONC-ATCB), providing details of the application process, application review, testing and certification of Complete EHRs and EHR Modules, testing and certification of “minimum standards,” and authorized testing and certification methods.  ONC-ATCBs that are authorized by the National Coordinator will test and certify that certain types of EHR technology (Complete EHRs and EHR Modules) meet the definition of Certified EHR Technology and are compliant with the standards, implementation specifications, and certification criteria adopted by HHS. ONC will consult with the National Institutes of Standards and Technology (NIST), and NIST will develop a test tool and test procedure for each certification criterion.

Notably, the final rule does not designate the Certification Commission for Health IT (CCHIT) as a temporary certification entity, despite CCHIT’s role in certifying EHR technology since 2006. Instead, CCHIT will need to apply to become an ONC-ATCB along with other interested organizations. In addition, the final rule does not provide automatic ONC certification (or "grandfathered" status) to existing EHRs, even if the systems had previously received certification from CCHIT.

Sunset Date and Permanent Certification Program

The temporary certification program was originally scheduled to sunset when ONC had authorized at least one ONC-Authorized Certification Body (ACB) under the permanent certification program, which is expected to be in place by 2012. The sunset date is now December 31, 2011, unless the permanent certification program is not fully constituted by then, in which case the National Coordinator will establish a later date.

ONC plans to issue regulations regarding establishment of the permanent certification program in the fall of 2010.

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According to the New York Times, Rwanda's health insurance plan covers 92% of its 9.7 million people for $2 per person per year.  Depending on which indices one looks at, Rwanda is one of the top 10 or 20 poorest countries in the world, with a GDP of just over $1,000 in 2007.

Compare that to the United States, indisputably one of the wealthiest countries in the world, but with a health insurance system that, pre-health care reform, leaves close to 47 million of our 310 million residents uninsured, and far more under-insured.

Having just returned from an 8-day vacation in Rwanda, I can tell you that the country has had help in building its health care infrastructure -- advertisements and signs for the Clinton Foundation are abundant.  And, while I didn't visit a hospital, or a Partners in Health site, or a do in depth research on the health care system while I was there (I spent more time wandering the streets of Kigali, trekking through the forest looking for gorillas, and safari-watching), I believe the NYT when it says that many Rwandans have trouble affording the $2 premium and that the services provided are rudimentary -- maternal and child health and infectious disease care. 

On the other hand, mosquito netting, anti-diarrheals, AIDS services, and help with childbirth are critical services for the Rwandan population.  Moreover, Rwandans lived through a shocking atrocity 16 years ago and have managed to pull themselves together into a functional society that manages to provide basic health care services to most of its residents.

I hope the U.S., through health care reform, can do the same.  I believe we're on our way, but implementation of the insurance reforms will be a key first indicator.  (Initial rules have been released over the past several weeks, see our blog post "More Insurance Reforms: HHS Releases Interim Final Rule on Preexisting Conditions, Lifetime & Annual Limits, Recisions, and other Patient Protections" for more information).

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On June 22, 2010, the Departments of the Treasury, Labor, and Health and Human Services issued interim final regulations implementing the rules for group health plans and health insurance coverage in the group and individual markets under provisions of the Patient Protection and Affordable Care Act regarding preexisting condition exclusion, lifetime and annual dollar limits on benefits, rescissions, and patient protections.  

These interim final regulations are effective 60 days after publication in the Federal Register.  Comments are due on or before 60 days after publication.

Bear with me for this rather long post, but the rule deserves a detailed explanation...

Preexisting Condition Exclusions

The Patient Protection and Affordable Care Act (PPACA) prohibits any preexisting condition exclusion from being imposed by group health plans or group health insurance coverage and extends this protection to individual health insurance coverage.  This prohibition is effective for new and grandfathered group plans beginning on or after January 1, 2014, but for enrollees who are under 19 years of age, this prohibition becomes effective for plan years beginning on or after September 23, 2010.

• “Preexisting condition exclusion” means a limitation or exclusion of benefits (including a denial of coverage):
  • Based on the fact that the condition was present before the effective date of coverage (or if coverage is denied, the date of the denial), whether or not any medical advice, diagnosis, care, or treatment was recommended or received before that day.
  • As a result of information relating to an individual’s health status before the individual’s effective date of coverage (or if coverage is denied, the date of the denial), such as a condition identified as a result of a pre-enrollment questionnaire or physical examination given to the individual, or review of medical records relating to the pre-enrollment period.
• Preexisting condition exclusion prohibits not just an exclusion of coverage of specific benefits associated with a preexisting condition in the case of an enrollee, but also a complete exclusion from such plan or coverage, if that exclusion is based on a preexisting condition.
• The interim final regulations do not change the HIPAA rule that an exclusion of benefits for a condition under a plan or policy is not a preexisting condition exclusion if the exclusion applies regardless of when the condition arose relative to the effective date of coverage.

Lifetime and Annual Limits

The PPACA prohibits lifetime limits, and generally annual limits, on the dollar value of health benefits from being imposed by group health plans, group health insurance coverage, and individual health insurance coverage on “essential health benefits.”  Lifetime limits are prohibited for all plans – both new and grandfathered – for plan years on or after September 23, 2010.  Annual limits are prohibited for new plans and grandfathered group plans beginning on or after January 1, 2014.  Prior to January 1, 2014, new and grandfathered group plans may impose “restricted annual limits.”

• A group health plan, or a health insurance issuer offering group or individual health insurance coverage, may not establish any lifetime limit, and generally, annual limit on the dollar amount of benefits for any individual.  Plans are permitted to impose limits with respect to specific covered benefits that are not “essential health benefits” to the extent that such limits are permitted under Federal or State law.
• Regulations defining “essential health benefits” have not yet been issued.  Until such regulations are issued, the Departments will take into account “good faith efforts” to comply with a “reasonable interpretation” of the term “essential health benefits.”  Plans must apply the definition consistently.
• Prior to 2014, new and grandfathered group plans may impose the following “restricted annual limits”:
  • For a plan year beginning on or after September 23, 2010, but before September 23, 2011 - $750,000.
  • For a plan year beginning on or after September 23, 2011, but before September 23, 2012 - $1,250,000.
  • For a plan year beginning on or after September 23, 2012, but before January 1, 2014 - $2,000,000.
• Waiver Authority
  • Prior to January 1, 2014, the Secretary of Health & Human Services may establish a program under which the restricted annual limits are waived for a plan if compliance would result in a “significant decrease in access to benefits under the plan or health insurance coverage” or would “significantly increase premiums for the plan or health insurance coverage.”
  • The regulations specifically mention coverage under a limited benefit plan or so-called “mini-med” plan.
• Notice & Enrollment Opportunity
  • Eligible individuals: Individuals whose coverage or benefits ended by reason of reaching a lifetime limit, and who become eligible (or are required to become eligible) for benefits not subject to lifetime limits under the PPACA.
  • Plans are required to provide notice to eligible individuals that lifetime limits no longer apply, and that they are once again eligible for benefits under the plan.
  • If such individuals are no longer enrolled in the plan, plans must provide an enrollment opportunity for 30 days for benefit packages available to similarly situated individuals who did not lose coverage by reason of reaching a lifetime limit.  Any difference in benefits or cost-sharing requirements constitutes a different benefit package.
  • For group health plans, notices may be included with other enrollment materials that a plan distributes to employees, provided the statement is “prominent.”
• The rules do not prevent a plan from excluding all benefits for a condition. However, if any benefits are provided for a condition, then the requirements on lifetime and annual limits apply.  Other requirements of Federal or State law may require coverage of certain benefits.
• Annual limit rules do not apply to flexible spending arrangements (FSAs), Medical Savings Accounts (MSAs), and Health Savings Accounts (HSAs).
• Health Reimbursement Arrangements (HRAs)
  • When HRAs are integrated with other coverage as part of a group health plan, and the other coverage complies with the restrictions on lifetime and annual limits, the fact that benefits under the HRA by itself are limited does not violate the PPACA.
  • Stand-alone HRAs limited to retirees are generally not subject to the rules relating to annual limits.

Rescissions

Under the PPACA, a group health plan, or a health insurance issuer offering group or individual health insurance coverage, must not rescind coverage except in the case of fraud or an intentional misrepresentation of a material fact. This provision is effective for all plans – new and grandfathered – for plan years beginning on or after September 23, 2010.

• A “rescission” is a cancellation or discontinuance of coverage that has a retroactive effect.  A cancellation or discontinuation of coverage is not a rescission if it only has a prospective effect, or the retroactive effect is attributable to a failure to timely pay required premiums or contributions.
• Under prior law, rescissions may have been permissible if an individual made a misrepresentation of a material fact, even if the misrepresentation was not intentional or made knowingly.  Under the new standard, plans and issuers cannot rescind coverage unless an individual was involved in fraud or intentional misrepresentation.
• Plans must provide at least 30 days advance written notice to each participant who would be affected before coverage may be rescinded, regardless of whether the rescission applies to an entire group or only to an individual within the group.
• If the Departments become aware of attempts in the marketplace to subvert the rules regarding rescissions (for example, long, complex enrollment questionnaires), the Departments may issue additional regulations or administrative guidance to ensure individuals do not lose health coverage unjustly or without due process.

Patient Protections: Choice of Health Care Professional & Emergency Services

The PPACA imposes a set of three requirements relating to the choice of a health care professional and requirements relating to benefits for emergency services for group and individual health insurance coverage.  The three requirements relating to the choice of health care professional apply only to a plan or health insurance coverage with a network of providers.  All requirements apply to new health plans beginning on or after September 23, 2010.

• Health Care Professional: If a plan requires or provides for designation by a participant, beneficiary, or enrollee of a participating primary care provider or pediatrician, then the plan or issuer must permit each participant, beneficiary, or enrollee to designate such provider who is available to accept the participant, beneficiary, or enrollee.
• Obstetrical or Gynecological Care: Plans may not require authorization or referral by the plan, issuer, or any person (including a primary care provider) in the case of a female participant, beneficiary, or enrollee who seeks coverage for obstetrical or gynecological care provided by a participating health care professional who specializes in obstetrics or gynecology.
• “Emergency medical condition” means a medical condition manifesting itself by acute symptoms of sufficient severity (including severe pain) so that a prudent layperson, who possesses an average knowledge of health and medicine, could reasonably expect the absence of immediate medical attention to result in placing the health of the individual in “serious jeopardy”; “serious impairment to bodily functions”; or “serious dysfunction of any bodily organ or part.”
•  “Emergency services” means a medical screening examination that is within the capability of the emergency department of a hospital, including ancillary services routinely available to the emergency department to evaluate such emergency medical condition, and such further medical examination and treatment, to the extent they are within the capabilities of the staff and facilities available at the hospital to stabilize the patient.
• Prior authorization is not permitted for emergency services, and emergency services provided out-of-network should generally be treated similar to services provide in-network
• Cost-Sharing
  • Any cost-sharing requirement for out-of-network emergency services cannot exceed the cost-sharing requirements for services provided in-network.
  • However, beneficiaries may be required to pay, in addition to in-network cost-sharing, the excess of the amount the out-of-network provider charges over the amount the plan or issuer is required to pay under the rules.
  • Further, any cost sharing other than a copayment or coinsurance requirement may be imposed for out-of-network emergency services if the cost-sharing requirement applies to out-of-network benefits generally.

In addition to the interim rule on pre-existing conditions, HHS, Treasury, and the Department of Labor have released a number of other rules related to insurance reforms and coverage open for public comment in the last several weeks.

• May 5, 2010: Interim Final Rule on Early Retiree Reinsurance Program under PPACA [.pdf]
• May 13, 2010: Interim Final Rule on Health Coverage for Adult Children (up to 26) under PPACA [.pdf]
• May 17, 2010: Internal Revenue Service (IRS) Notice 2010-38, providing guidance on the tax treatment of health care coverage provided for adult children (up to 26) under PPACA
• June 10, 2010: Model Contract to Operate High Risk Pools [.pdf]
• June 17, 2010: Interim Final Rule on Grandfathered Plans under PPACA [.pdf]

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A few months ago, we blogged about recent developments in the area of “reverse payment” settlements, also known as “pay-for-delay” settlements. As readers may recall, the FTC is strongly opposed [.pdf] to these settlements on anticompetitive grounds, and has fought them in court — relatively unsuccessfully — for years. However, the tide may be turning ever so slightly.

(A quick refresher: These settlements usually arise when an generic manufacturer brings an invalidity claim against an innovator’s drug patent. The innovator may then agree to make a financial payment to the generic manufacturer, in exchange for the generic manufacturer agreeing to delay production of the generic equivalent).

Back in March, it appeared that the FTC’s losing streak would continue, despite its best efforts. The FTC had just lost a challenge to a reverse payment settlement in the federal district court in Georgia, and had seen what many thought was their best chance at achieving a legislative victory — having the ban included in the health care reform bill — fail to materialize. The issue appeared to have lost momentum.

Enter the Second Circuit Court of Appeals. At the end of April, a three-judge panel of the Second Circuit issued its ruling in the Cipro reverse payment case [.pdf]. As was expected, the panel ruled in favor of Bayer and Barr’s reverse payment settlement, holding that agreement at issue did not constitute an antitrust violation.  This wasn’t much of a surprise — indeed, most observers believed that the Second Circuit was bound to reach this result by its previous precedent in an earlier case involving Tamoxifen [.pdf]. 

However, the Second Circuit then did something exceptionally unusual: It stated that “because of the ‘exceptional importance’ of the antitrust implications of reverse exclusionary payment settlements of patent infringement suits, we invite plaintiffs-appellants to petition for rehearing in banc.” 

In legal parlance, “in banc” (or “en banc”) review is the further review of a three-judge panel’s decision by the entire Second Circuit bench. While the losing party in any appellate case always has the option to request en banc review, historically the Second Circuit rarely grants such petitions [.pdf].  And it’s even more rare that a panel will affirmatively invite the losing party to seek en banc review — essentially admitting that it was forced by precedent to reach a result that it thought was incorrect.

All of this suggests that the Second Circuit may be poised to reverse its position on reverse payments, which would be a significant victory for the FTC. The losing party has already submitted its petition for en banc review [.pdf], which has been supported by amicus briefs from the Justice Department [.pdf] and others, and a decision from the Second Circuit as to whether it will grant en banc review could come at any time. 

Just when the FTC’s efforts on reverse payments seemed to be coming up short, the Second Circuit may have thrown reverse payment opponents a lifeline.

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A Washington-ABC News poll released this week shows that only 26 percent of the public approves of the way Congress is doing its job.  The survey also found that only 29 percent of Americans say they are inclined to support their House representative in November. 

This finding is lower than in 1994, when voters swept the Democrats out of power in the House of Representatives after 40 years in the majority.

Two incumbent senators lost their seats earlier this year:

• Democrat Senator Arlen Specter of Pennsylvania; and
• Republican Senator Robert F. Bennet of Utah. 

Democrat Senator Blanche Lincoln of Arkansas narrowly avoided becoming the third incumbent senator to lose his/her seat – she won 52 percent of the vote on Tuesday, compared with Lt. Gov. Bill Halter’s 48 percent.  Lincoln will face Republican Rep. John Boozman in the general election this fall.

Lincoln was backed by President Obama and received considerable assistance from former President Bill Clinton.  Halter was backed by labor unions and liberal groups who were unhappy with Lincoln’s position on health care and labor law reform.  For now, Lincoln appears to have beaten back anti-incumbent rage, but she still has a challenge ahead of her in the fall.  Some Democrat insiders felt that Halter would have made a better candidate than Lincoln against Rep. Boozman because Halter has no Washington record.  

The Arkansas Senate race is certainly not the last of the incumbent challenges. Races to watch this fall include:

• Democrat Senator Barbara Boxer of California
• Democrat Senator Patty Murray of Washington
• Democrat Senator Russ Feingold of Wisconsin,
• Senate Majority Leader Harry Reid of Nevada.

What do all these races mean for health reform implementation?  The anti-incumbent mood in America is not necessarily a referendum on health reform.  The Washington-ABC News poll also showed growing disapproval of the tea party movement, who have been particularly vocal with their negative views on health reform.  Forty-nine percent say they have an unfavorable impression of the movement, ten percentage points higher than a poll from March.

However, Americans continue to remain divided about whether health reform was a good idea.  According to a Kaiser Family Foundation Poll from May, 43 percent of Americans believe the country as a whole will be better off under the new health reform law; 13 percent think the bill will make no difference; and, 35 percent think the country will be worse off.  Only 36 percent of registered independents think the country will be better off; 39 percent of independents think the country will be worse off.

Former Senate Majority Leader Tom Daschle (D-SD) and Victoria Kennedy — widow of Sen. Ted Kennedy (D-MA) — are expected to be named co-chairmen of a $125 million campaign that White House allies are rolling out to defend health care reform.  This campaign comes on top of high-profile health reform events held by President Obama, and controversial health reform brochures recently sent to Medicare beneficiaries by HHS. 

While Democrats are hopeful that some of the “immediate” provisions of health reform will help turn the tide, the reality is that most of these “immediate” insurance reforms will not take effect until next year, long after the fall elections.   Health reform may not be the defining issue behind anti-incumbent rage, but Democrats will need a lot more than brochures, town halls, and former Senate Majority Leader Daschle to sell health reform to the majority of Americans in time for the November elections.

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 On Tuesday, June 1^st, CMS officials including Jonathan Blum, CMS Deputy Administrator and the Director of the Center for Medicare, and Cynthia Tudor, CMS’ Director for the Medicare Drug Benefit and C & D Data Group hosted a public forum with a wide range of stakeholders to discuss how the new Part D Coverage Gap Discount Program (“Coverage Gap Program”), established in the recently enacted Affordable Care Act (“ACA”), will be implemented. 

The Coverage Gap Program will “fill the donut hole” by gradually reducing the coverage gap (or, “donut hole”) that Medicare beneficiaries currently face when they reach their coverage limit and before they reach the “catastrophic” coverage.  Under pre-health reform law, seniors were required to pay the full cost of their drugs when they fell into the “donut hole.”  The new law requires manufacturers, beginning January 1, 2011, to provide a 50% discount off of the negotiated price on applicable Part D drugs (brand-name and some authorized generic drugs) at the point of sale in order for that drug to be covered by the Part D program. 

At yesterday’s meeting in Baltimore hosted by CMS, Agency officials discussed the Agency's initial guidance issued in the end of April and revised guidance issued May 21^st on implementation of the coverage gap program.  CMS also walked through the draft Model Agreement issued by CMS that includes key dates and requirements for manufacturers and Part D Plans, and described critical aspects of the discount program such as prescription drug event (PDE) data and how this data will be used to generate an invoice to be sent to the manufacturer from the third party administrator (TPAs). 

The meeting provided several opportunities for public comment and questions and also included scheduled time for presentations from stakeholders.  Pharmaceutical manufacturers presented on key issues such as the requirement that manufacturers pay the entire invoiced amount for the discounts to the Part D plan within 14 days of receiving the invoice (a requirement which is unworkable from pharma’s perspective), and the way in which a drug is determined to be branded or generic for purposes of the donut hole discount.  AARP emphasized the importance of this new program for seniors who struggle financially when in the donut hole, and plan sponsors emphasized the connection between manufacturer discounts and beneficiary premiums.

CMS has yet to finalize the Model Agreement that pharmaceutical manufacturers will use when the Coverage Gap Program becomes effective, but it will have to do so in time to meet the statutory effective date for the Coverage Gap Program, which is January 1, 2011.  Additional information and CMS materials on Prescription Drug Coverage can be found on CMS' website.

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There’s been a flurry of interest in a provision included in the health care reform bill that creates a temporary tax credit for businesses with less than 250 employees who engage in qualifying therapeutic discovery projects for the tax years 2009 and 2010.  Businesses with no (or insufficient) tax liability can also benefit from the program, since the program permits applicants to elect to receive a cash grant in lieu of the tax credit.

A summary of the tax credit is available here, and material from the IRS is availabe here (.pdf) and here, but in brief:

• The aggregate cap on the tax credit and grants is $1 billion for tax years 2009 and 2010 for all companies. 
• The amount of the tax credit or grant is equal to 50% of the qualified investment for the taxable year for any qualifying therapeutic discovery project.
• A qualifying therapeutic discovery project (QTDP) is a project which is designed to:
  • treat or prevent diseases or conditions by conducting pre-clinical activities, clinical trials, and clinical studies, or carrying out research protocols for the purpose of obtaining FDA approval of the product; or
  • diagnose diseases or conditions to determine molecular factors related to diseases or conditions by developing molecular diagnostics to guide therapeutic decisions; or
  • develop a product, process, or technology to further the delivery or administration of therapeutics.

In addition to meeting the criteria for the definition of a QTDP, to be eligible for the tax credit or grant, companies will need to show that that the project:

• has reasonable potential to result in new therapies to treat areas of unmet medical need; to prevent, detect, or treat chronic or acute diseases; to reduce the long-term health care costs in the U.S.; or to significantly advance the goal of curing cancer within 30 years; and
• has potential to create and sustain high quality, high paying jobs in the U.S. and to advance the U.S. global competitiveness in life, biological, and medical sciences.  (I think this one, while buried in the statute, will likely be a key factor in the application, reminiscent of job creation tied to stimulus funding).

According to guidance (.pdf) released by the Treasury Department on May 21, 2010 there will be a primary allocation round of funds.  If funds are left over after this primary round, additional allocation rounds will be conducted.  Companies may apply for 2009 and 2010 in the same application, but will not receive 2010 funds until actual 2010 expenses are documented at the end of the year.

• Applications will need to be submitted on Form 8942, "Application for Certification of Qualified Investments Eligible for Credits and Grants Under the Qualifying Therapeutic Discovery Project Program."  This form will be released no later than June 21, 2010 on www.irs.gov.  (The form is likely to be a cover letter-type sheet to guide compiliation of the substantive documents and material needed for the application, as laid out in the May guidance). 
• Applications must be submitted to IRS by July 21, 2010 or will not be accepted.
• Each application will be subject to a preliminary review, which will enable the IRS to determine whether the applicant is an eligible taxpayer (as defined in section 4.03 of the guidance) and whether the application is otherwise complete.  Preliminary review of timely-filed applications will end on September 30, 2010.
• The IRS will approve or deny applications for certification no later than October 29, 2010.
  • The IRS will determine whether to certify all or a portion of a taxpayer’s qualified investment eligible for the therapeutic discovery project credit or grant after HHS (likely via NIH) has completed its review of all applications submitted by eligible taxpayer.
• There will be a $5 million cap per taxpayer for all applications for 2009 and 2010.

Section 5 of the guidance also describes how the IRS will go about certifying and distributing the $1 billion pot of money across eligible applicants (the IRS estimates it will receive 1,200 applications for the tax credit or grant).  Unlike the tax credits for investments in qualifying advanced energy projects included in the American Recovery & Reinvestment Act of 2009 (IRC § 48C), it does not appear that the QTDP tax credit will be allocated on a first-come, first-served basis (so no need to rush to get the application in ASAP), nor is there included an explicit consideration of geographic location, despite previous rumors to the contrary (though it may be that there is an unofficial eye toward geographic diversity).

Despite the guidance, there are still outstanding questions, including many related to what a QTDP really is.  For example, what types of medical devices qualify as a “technology to further the delivery or administration of therapeutics”?  Are projects related to stand alone diagnostics which are not tied to a specific drug, but which could generally influence prescribing patterns eligible?  IRS may, or may not, release further guidance before the end of June.

Regardless of the unanswered questions, it is worthwhile for companies that think they have eligible projects to begin compiling and writing their applications to ensure timely filing.

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Yesterday, the FDA took another step forward in its Transparency Initiative with the highly publicized release of twenty-one suggested recommendations on the public disclosure policies of the Agency. 

These draft proposals are open for public comment for 60 days (until July 20, 2010), and are contained in a report titled FDA Transparency Initiative: Draft Proposals for Public Comment Regarding Disclosure Policies of the U.S. Food and Drug Administration.

In addition to the release of the Report on the FDA’s Transparency website, the New England Journal of Medicine carried an article announcing the Report by Principal Deputy Commissioner Joshua Sharfstein, M.D., Chair of the Transparency Task Force, and Afia Asamoah, J.D., Director of FDA’s Transparency Initiative and senior advisor in the Commissioner’s Office. Dr. Sharfstein and Ms. Asamoah also held conference call with interested stakeholders and the media to explain the Report and answer questions.

According to the agency, the Report marks the near-conclusion of Phase II of the FDA’s Transparency Initiative.  Phase I was the launch of the FDA Basics website.  Phase II relates to the public disclosure policies, and various undertakings such as public meetings and listening sessions to solicit comments to inform the recommendations for public disclosure.  Phase III, the final phase of the Transparency Initiative, will focus on transparency to regulated industry.  Dr. Sharfstein indicated yesterday that draft recommendations on industry transparency will be forthcoming from the FDA this summer.

The draft public disclosure recommendations released yesterday fall into seven categories: (1) adverse event reports; (2) docket management practices; (3) enforcement priorities and actions; (4) import procedures; (5) inspections; (6) product applications; (7) recalls; and (8) warning and untitled letters. 

Ten of the twenty-one draft recommendations are related to product applications.  For example, in the Report, FDA recommends that the public should be notified if an NDA, BLA or other product application is submitted, and that when a refuse-to-file or complete response letter is issued related to a product application, that letter should be made public.  While these recommendations are not a surprise (based on the public comments and discussion at the November 2009 public meeting on transparency) they are likely to be the most controversial from an industry perspective, as industry has argued vehemently that correspondence related to product specific applications can contain highly confidential trade secrets.  

Recognizing industry’s concerns, Dr. Sharfstein made clear on the stakeholder conference call and in the Report that trade secrets should remain confidential and would be redacted from any public disclosures.  However, at the November meeting, the industry panelists argued that even the mere fact that an NDA has been filed could be considered a trade secret, thus there may be significant opposition to some of the product application recommendations.

The FDA is actively seeking public comments on the draft public disclosure policies for 60 days.  Comments can be submitted via www.regulations.gov or through links on the FDA Transparency website at www.fda.gov/transparency.

Dr. Sharfstein indicated yesterday that the agency is specifically looking for comments on the substantive nature of the proposals, as well as input on how the Agency should prioritize implementing the proposals.  Based on public input, the Task Force will then recommend specific proposals to the Commissioner for consideration.  Sharfstein noted that the “Task Force did not, at this stage of the review, consider the feasibility of implementing the proposals” and that “some of the draft proposals may require extensive resources to implement, and some may require changes to regulations and possibly even legislation.” 

Consequently, based on public input and further internal consideration, the Task Force may ultimately recommend some, but not all, of the draft proposals to the Commissioner for implementation.

Read a more detailed summary of the report here (.pdf).

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According to the Council of Economic Advisors (.pdf), only 49% of companies with 3 to 9 workers offered any type of health insurance to their employees in 2008, and this percentage is steadily declining.  In contrast, 99% of firms with more than 200 workers offered health insurance in 2008. 

Those figures don't tell the whole story, however. 

Even if a small business offers coverage, its premiums are, on average, 18% higher than large group premiums, and the covered benefits far less generous.  Moreover, the employer may not pay as high a percentage of the premium as a large firm can afford to do.  Finally, because the risk is spread over a very small number of employees in a small group plan, if one employee falls seriously ill, coverage may be dropped for the entire group or premiums raised so astronomically that coverage becomes unaffordable.

In other words, small businesses struggle to offer affordable health insurance to their employees.  That's not news, but after digesting these figures, I did spend some time thinking about health care reform through a new lens – how it will really impact small businesses?  Here's what I came up with:

• Mandate.  Small employers (<50 FTEs, calculated according to a statutory formula) are exempt from the employer mandate, which becomes effective in 2014.  All individuals, however, including individuals employed by small businesses, are subject to the individual mandate in 2014.  Under the mandates, employers must offer minimum creditable coverage to employees or face fines, and individuals must purchase minimum creditable coverage or face fines.  Whether the fines are large enough to be an effective stick in forcing employers to offer and individuals to purchase coverage is an open question.
• Purchasing Coverage.  The health care reform bill includes some useful provisions to help small businesses, and individuals, purchase coverage. 
  • Exchanges & SHOP.  By 2014, states are required to establish Exchanges to faciliate the purchase of affordable coverage.  States are also required to offer a Small Business Health Options Program (SHOP) to help small business enroll employees in coverage -- e.g., by pooling small businesses together for purposes of purchasing insurance.
  • Tax Credits.  Beginning in 2010, small businesses may receive a tax credit to offset the expense of purchasing health insurance coverage, provided the employer pays at least 50% of the premium for its employees.  Small businesses with average annual wages less than $25,000 and less than 10 FTEs are eligible for the full credit; the credit is gradually scaled back for employees with between 10-25 FTEs and annual wages between $25,000-$50,000.  Individuals up to 400% of the FPL can also receive tax credits and subsidies to purchase insurance and are eligible for reduced cost-sharing and out of pocket limits under a purchased health plan.
• Quality of Coverage.  Perhaps most important to small businesses and their employees are the insurance reforms that will improve the quality of benefits offered.  Soon, insurers will no longer be able to exclude pre-existing conditions from coverage, rescind benefits, cap benefits, or discriminate based on health status or claims usage.

According to the Congressional Budget Office (.pdf), health care reform will reduce premiums in the small group market by 1-4% by 2016.  The Administration also estimates that small businesses will receive about $40 billion in tax credits to purchase health insurance coverage.  In guidance (.pdf) released yesterday, the IRS estimated that as many as 4 million small businesses may be eligible for those credits.

At first blush, that doesn't seem like a huge benefit, especially if the employer and individual mandates aren't powerful enough to force near-universal coverage.  On the other hand, every tax credit and financial subsidy will help.  Plus, pooling mechansims through the state SHOPs should increase bargaining power for small businesses, state Exchanges should offer individuals a place to find affordable coverage outside of their employer, and the insurance reforms offer protections that reduce "job lock" and make employment at a small business a more attractive option.

My hope: health reform will make small businesses more economically competitive by reducing the financial burden of providing health insurance and improving employees access to affordable coverage.

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For several months, President Barack Obama, HHS Secretary Kathleen Sebelius, and Congress have touted the immediate benefits of health reform.  For example, in his remarks on the health reform bill on April 1, President Obama stated,

[I]t will take about four years to implement this entire plan, because we've got to do it responsibly, we need to get it right.  But there's also a set of reforms that will take effect this year.  So I just want to -- I want everybody to understand what's going to happen this year… Tens of thousands of uninsured Americans with preexisting conditions, and parents whose children have a preexisting condition, will finally be able to purchase the coverage that they need.  That happens this year… Here's what else happens: Insurance companies won't be able to drop people's coverage when they get sick; or place lifetime limits or restrictive annual limits on the amount of care they can receive.”

Individuals who visit the White House website to learn about health reform are directed to a list of frequently asked questions, one of which addresses these immediate reforms:

“Q: What consumer protections will I get this year?

A: Beginning in September 2010, insurers will be prohibited from placing lifetime limits on what they will pay for your medical care, and they can only apply restricted annual benefit limits.  Insurers will no longer be able to arbitrarily cancel your insurance policy when you get sick, except in cases of fraud.Insurance companies will be prohibited from denying coverage to children with pre-existing conditions. This applies to all new and existing employer plans.”

However, as most people know by now, the devil is in the details.  The effective date for these “immediate” reforms is found on page 22 of the 906-page bill.  The provision states that insurance reforms “shall become effective for plan years beginning on or after the date that is 6 months after the date of enactment of this Act.”  While most individuals believe lifetime caps, pre-existing condition exclusions, rescissions, and other “immediate” reforms will go into effect in September of this year, the bill language suggests that many Americans will have to wait until their plan year begins. 

Most large group plans begin their plan years on January 1.  For example, the Federal Employees Health Benefits (FEHB) Program will start their new plan year on January 1, 2011.  However, commercial plans vary with no set or required date on which their plan year must begin.  Foley Hoag’s own plan year begins on July 1, 2011.  The bill’s effective date language has led many insurers to announce delays of the “immediate reforms” until 2011.

That is why over 90 patient groups sent a letter to Sec. Sebelius on May 7, urging the Secretary to clarify that lifetime cap elimination and other immediate reforms must take effect in September of this year.  Without clear guidance from HHS and the new Office of Consumer Information and Insurance Oversight, patients who have listened to the President, Secretary Sebelius, and Congress may find that the promised “immediate” reforms don’t await them in September, 2010. 

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The 1909 "Plan of Chicago" - architect Daniel Burnham's famous plan to rebuild Chicago after the Great Fire in a strategic (and "green") fashion to accommodate the city's ever expanding population - did not likely envision the city as host to thousands of biotechies streaming through McCormack Place.  And yet, the scene in the massive convention center by Lake Michigan has been just that for the last few days, as people from around the world fly in for the annual BIO International Convention.

As usual, BIO features an extensive exhibit hall where everyone from the country of Sweden to Pfizer sets up shop with booths and give-aways for those who wander by. BIO also has more than 100 breakout sessions for participants to attend, in addition to "super sessions," and keynote speakers.  A few of the breakout sessions that caught my eye:

• How to Improve to Improve the Working Relationship Between the Life Sciences Industry and the FDA
• Follow-on Biologics: The Proposed Legislation and its Impact on Your Patent Portfolio"
• Patenting Genes: In Search of Calmer Waters
• One Year Later: Comparative Effectiveness Research and the Government Role (Foley Hoag attorney Jayson Slotnik participated in this panel)
• What You Need to Know about ITC Section 337 Investigations (Foley Hoag attorney DeAnn Smith chaired this panel)
• Commercializing Stem Cell Based Therapies: Meeting FDA and Other Requirements (I chaired this panel)
• The 111th Congress: What Happened in the First Session and What's Still to Come (Foley Hoag health policy specialist Barrett Thornhill chaired this panel).

One highlight from BIO this year was yesterday's luncheon keynote.  Former Presidents George Bush and Bill Clinton spoke to a crowed ballroom.  While the two didn't have much to say about biotech, they did explain the ongoing efforts to rebuild Haiti, and discussed what they miss (or don't miss) about the White House.  

Commissioner Hamburg also spoke yesterday afternoon.  She sounded a now familiar theme of hers - the need to improve regulatory science at the agency to facilitate efficient approval of safe and effective medical products.  Hamburg spoke of the FDA as a "gateway" to the market rather than a barrier to commercialization.  Her talk was reminiscent of speeches she has given recently, including in February at the announcement of the NIH/FDA collaboration on regulatory science.  

BIO wraps up tomorrow, but returns next year in D.C., which is sure to be a draw for political speakers.

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The second in a series of congressional briefings with the Center for a New American Security took place on April 16, 2010 and focused on prevention and response measures related to biological threats.  Participants discussed incentives for private-sector participation, law enforcement and intelligence information integration, and coordination of U.S. and international efforts against bioterrorism.

Gregory Koblentz, deputy director of George Mason University’s biodefense graduate programs, discussed issues related to funding and stated that prevention of biological attacks is historically the lowest funded biosecurity effort.

Members of Congress have expressed similar concerns with the level of funding for biodefense efforts.  Senators Robert Casey (D-PA) and Richard Burr (R-NC) recently circulated a "Dear Colleague" and letter to the Senate Appropriations Committee in support of prioritized funding for the Biomedical Advanced Research and Development Authority (BARDA) to support enhanced medical countermeasure research and development against deadly bioterrorism threats.  Representatives Anna Eshoo (D-CA) and Mike Rogers (R-MI) sent a similar letter to members of the House Appropriations Committee.

The briefing series is scheduled to continue on May 21, 2010.  This, the final briefing in the series, will focus on resilience and ensuring broad spectrum capabilities to address the range of biological threats from anthrax, smallpox, emerging diseases and synthetic threats.

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Ending months of speculation over who will be named the next Administrator of the Centers for Medicare & Medicaid Services (CMS), President Obama finally made his pick, and nominated Donald M. Berwick, M.D. on April 19.

While Dr. Berwick’s nomination ends the recent months of anticipation over his announcement (Administration officials tipped off the press and public about this expected nomination at the end of March), it is only the beginning of the next phase—the Senate confirmation process.

Dr. Berwick is a pediatrician, Harvard alumnus, Harvard professor, President and CEO of the Institute for Healthcare Improvement, innovator, scholar, author, and little known to most, an honorary Knight Commander of the Most Excellent Order of the British Empire.

Despite Dr. Berwick’s qualifications, many expect the Senate confirmation process will be as much about rehashing the politics and emotions of health care reform as it will be about debating Dr. Berwick’s credentials.

Leaving the politics of health care reform aside, the confirmation hearing should center on the substance of the new law as the next CMS Administrator will have significant power and influence over how this historic and expansive law is implemented. CMS will be on point for operationalizing numerous provisions including closing the Medicare Part D prescription drug “donut hole”; creating a four-year, eight-state bundled payment system demonstration project; and establishing the new Center for Medicare and Medicaid Innovation which will test further potential changes to the Medicare and Medicaid payment systems.

Running a $750 billion Agency which covers roughly 100 million Americans (about 1 in every three Americans) will be no easy task, but Dr. Berwick has an impressive resume to say the least, and has devoted his life and career to improving the health of others and driving systematic change where change is needed. The confirmation process might be a show, but we expect the final vote will be “aye” for Dr. Berwick.

[To get to know Dr. Berwick a little better, watch this 1000LivesCampaign interview with him on YouTube].

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The Physician Payment Sunshine Act was one of hundreds of policies and programs that became law — with comparatively little fanfare — as part of the passage of the massive Patient Protection and Affordable Care Act at the end of March (see our entry "Health Care Reform Enacted: What Next?" for more about PPACA). 

Originally proposed in 2007 by Senators Charles Grassley and Herb Kohl, this provision is intended to bring the financial relationships between drug and device manufacturers and physicians “into the sunshine,” hence its name.  At the same time, these new provisions will create significant new legal obligations for the drug and device industry. 

Starting in March 2013, drug and device manufacturers will have to make annual federal disclosure filings, detailing their financial relationships with (and in-kind contributions to) individual physicians and teaching hospitals.  These disclosures will be made publicly available on a searchable online database.  While the new law is intended to reach broadly — most “transfers of value” greater than $10 must be reported — there are also a number of specific exceptions, including product samples, discounts, and rebates. 

And of course, to meet the March 2013 filing deadline, manufacturers need to be prepared to start actually collecting data beginning January 1, 2012. 

What if manufacturers simply fail to report?  They could be on the hook for penalties ranging from up to $10,000 for an unintentional failure to report, to up to $100,000 for a knowing failure to report.

The public disclosure of industry-provider financial relationships isn’t entirely new — several states, including Vermont [.pdf], Minnesota, and Massachusetts [.pdf] have such laws, and some hospitals are voluntarily reporting the relationships of their physicians with industry.  Plus, a number of manufacturers are already disclosing data on their relationships with providers voluntarily, while others are doing so as part of legal settlements. 

What is new is that the federal Sunshine provisions create a uniform “baseline” standard for reporting, and apply that standard to drug and device manufacturers, physicians, and teaching hospitals across the country. 

One key concern of manufacturers is that the Sunshine provisions do not fully “preempt” state disclosure laws.  Instead, the new law expressly allows states to continue administering their own stricter disclosure laws, in parallel with the federal Sunshine provisions.  (For instance, states could still require that manufacturers disclose payments made to categories of health professionals that the Sunshine provisions do not currently cover — such as pharmacy benefit managers).  As a result, manufacturers may potentially have to implement compliance programs that respond to both the federal Sunshine provisions and the growing patchwork of state disclosure laws.  

With more states considering their own disclosure laws, this will be an issue to watch over the coming months.

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In the February entry "Microscope to Marketplace: Historic FDA/NIH Collaboration", I wrote about the new, $6.75 million collaboration between FDA and NIH to "accelerate the process from scientific breakthroughs to FDA approved medical products."

Commissioner Hamburg promised that she was

confident that our strengthened coordination and collaboration with NIH will enhance our efforts and add important momentum toward achieving our common goals of improving health, reducing disease, and saving lives.

The passage of health care reform (see our blog entry on this topic, Health Care Reform Enacted - What Next?), which includes Senator Specter's (D-PA) "Cures Acceleration Network" (.pdf) should help the Commissioner deliver on that promise. 

The Cures Acceleration Network (CAN) is established within the Office of the Director of NIH to conduct and support "revolutionary advances" in translating scientific discoveries from bench to bedside.  (Right on target with the February announcement of the Microscope to Marketplace Initiative).

To accomplish this goal, the CAN must:

1. Awards grants and contracts to eligible entities to accelerate the development of "high need cures."
   AND
2. Facilitate FDA review and approval of "high need cures" by establishing regular communications between FDA and NIH and ensuring that CAN activities are coordinated with FDA approval requirements.

In other words, in addition to a grant program, the CAN provision is a statutory mandate for the NIH, which funds biomedical research, and the FDA, which approves for human use the results of that research, to talk to each other.  One might think this already happens, but it doesn't always.

This is a boost for industry and for the two sister agencies who can work together to get medical products to patients in need.

Not to mention the CAN is a nice potential funding increase for NIH, which is still scrambling to determine how it will deal with the budget cliff after stimulus funding dries up.  The bill authorizes $500,000 million for the CAN in FY2010 and such sums as necessary for subsequent years.  It remains to be seen how this will shake out during the appropriations season, but Sen. Specter is keen to see the NIH budget steadily increased.

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Fulfilling what Senator Edward Kennedy described as “the great unfinished business of our society,” Congress has enacted, and the President has signed into law, comprehensive health reform in the Patient Protection and Affordable Care Act (PPACA, Pub. L. No. 111-148 .pdf) and the Health Care and Education Reconciliation Act (H.R. 4872 .pdf).

Among other things, these historic bills will:

• insure 32 million additional Americans by 2019, extending health insurance to 94% of Americans;
• close the Medicare "donut hole" for seniors;
• require important reforms that will protect patients and their families, promote prevention and wellness services, and improve the quality of health care; and
• establish a new approval pathway for biosimilars at the Food and Drug Administration (FDA), as well as new incentives for the development of innovative biotechnology medicines.

Foley Hoag has done a complete analysis (.pdf) of how health care reform will impact pharmaceutical, biotech and medical device companies. 

We've also summarized the insurance reforms (.pdf), such as elimination of lifetime limits and annual limits on health benefits, requiring insurers to provide dependent coverage until age 26, prohibiting discrimination based on health status, pre-existing conditions or disability, and important improvements in guaranteed issue and renewal.  

But enactment of the law is only the first (albeit ground-breaking) step in what promises to be a long implementation journey.  We'll keep you posted on milestones along the way.

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