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CCH Health NetNews

May 2017

In This Issue

Welcome to Health News Update

On the Front Lines

Global ransomware cyberattack a warning, opportunity for U.S. health providers


Compliance

Settling FCA prescription-drug challenge costs Omnicare $7.4M

Government intervenes in UnitedHealth fraud suit, alleges $1 billion in damages


Reimbursement

Latest changes to reporting formats for hospital quality of care have been released

Court affirms HHS' finding of overpayments to ambulance company


Coding

AMA Coding Guidance: March 2017 CPT® Assistant


Reform

HHS again delays effective date of 340B ceiling price, CMP regulations

CMS announces final values for calculating BHP payment rates


Life Sciences

State failure to warn claim not pre-empted where FDA had proposed same warnings

No sugarcoating it, 'evaporated cane juice' case moving forward


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On the Front Lines

Global ransomware cyberattack a warning, opportunity for U.S. health providers

By Kathryn S. Beard, J.D

A global cyberattack affecting more than 300,000 computers in 150 countries with ransomware known as “WannaCry” led to patient diversion and delay of nonemergency surgeries at hospitals and other health care providers across the United Kingdom's National Health Service (NHS). WannaCry exploits a Microsoft® Windows™ vulnerability; although the software company released a patch to fix that vulnerability in March 2017, many providers and individuals failed to install the patch. At the NHS hospitals, key systems including patient records, diagnostic tests, and telephones were affected beginning on May 12, 2017; four days later, two hospitals continued to divert certain patients. Alisa Chestler, a shareholder with Baker Donelson warned that no provider, even one who has not experienced any cyber disruptions to date, can ignore the WannaCry attack.

WannaCry ransomware. The WannaCry malware is often delivered via emails that trick the user into opening attachments; once downloaded onto a computer, WannaCry locks up computer files and encrypts them to prevent access. It then demands a ransom payment, generally about $300, to release the data back to its owner. The Federal Bureau of Investigation (FBI) does not support paying a ransom in response to a ransomware attack because there is a no guarantee that data will be returned, and such payments may create an incentive for other criminals to attempt similar attacks. The FBI recommends taking precautionary measures to prevent ransomware attacks, and anyone who suspects such an attack should contact the FBI's 24-hour CyberWatch hotline by calling (855) 292-3937 or emailing CyWatch@ic.fbi.gov.

Tips. Chestler offered the following tips to health care professionals to prepare for a similar attack:

  • Communicate. Prepare and send an alert for employees and staff regarding their roles in preventing such attacks on your networks. Chestler noted that very few emails contain an “emergency”; therefore, everyone should be thoughtful when opening email attachments, even if an email appears to be from a known source. Ensure that all employees know how to access an information technology (IT) help desk 24 hours a day, 7 days a week, because “system incidents are not limited to a 9-5 workday.”
  • Review Incident Response Plan. Ensure communication lines between management, counsel, and key IT personnel are open and ready to implement the incident response plan. The response plan should specifically anticipate a ransomware attack; if not, it should be updated accordingly. Chestler says that documented Incident Response Plans are an expected compliance obligation for all organizations regardless of the size, industry, or kind of information maintained by the systems.
  • Know The Patching Compliance. Patch Management programs are the lifeblood of any IT security structure. Thousands of organizations were immune to the WannaCry strain of ransomware because they were up-to-date with their patches. Management should ask whether critical patches are up to date, and if not, initiate a plan to get programs as current as possible.
  • Use this As an Opportunity. Chestler warned that management, legal, and IT security can no longer keep “kicking the can” when it comes to information security. Whether the systems include information on trade secrets or personal information of individuals (including employees) or the systems just keep the machinery up and running, computer systems and programs are the lifeblood of an organization. Chestler says that it is “critical” to know compliance and contractual obligations before an event. She also suggests using this cybersecurity attack as an opportunity to revisit some prior decisions, such as delays in implementing multi-factor authentication, which Chestler says “is widely becoming the most important information security protocol.”

HHS guidance. HHS has resources available to assist providers and suppliers with cybersecurity. A “Dear Colleague“ letter released in June 2016 provided information about the threat posed by ransomware (see Lawmakers, agencies raise specter of ransomware threats to cybersecurity, June 30, 2016), and the HHS Office of Civil Rights (OCR) soon thereafter published a Fact Sheet on Ransomware and the Health Insurance Portability and Accountability Act of 1996 (HIPAA) (P.L. 104-191) (see With data up for ransom, OCR offers guidance, August 3, 2016). More recently, CMS sent a letter to state survey agency directors providing reminders and best practices for information security (see CMS 'HITs' providers in the right direction with cybersecurity resources, January 18, 2017). Providers should review these resources and then ensure that their own programs, policies, and procedures are up to date to prevent cyberattacks.


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Compliance

Settling FCA prescription-drug challenge costs Omnicare $7.4M

By Susan Smith, J.D., M.A.

Omnicare, Inc., a provider of pharmacy goods and services, has settled a qui tam claim that it violated the False Claims Act (FCA) (31 U.S.C. §3729) by dispensing drugs with patient-specific labels containing incorrect National Drug Codes (NDCs) and manufacturer information and submitting claims for payment to the Medicare and Medicaid programs. In addition to this settlement agreement with the Department of Justice (DOJ) and HHS Office of Inspector General (OIG), Omnicare will be entering into separate settlement agreements with certain states and a Corporate Integrity Agreement with the OIG and CVS Health, which acquired Omnicare (Settlement Agreement, May 17, 2017).

The allegations. The United States alleged that the FCA violations occurred during the period from January 2008 through December 2014, when Omnicare implemented an automated label verification (ALV) system that was designed to utilize a less specific drug code known as “MEDID” during its automated stage II pharmacist verification process rather than the NDC corresponding to the drug intended to be dispensed and billed. According to the U.S., this caused Omnicare's automated system to approve the dispensing of generic drugs in more than two million transactions where the drug dispensed was made by a different manufacturer and had a different NDC than the drug initially identified by the pharmacist to be dispensed. Omnicare then billed Medicare Part D and Medicaid for drugs with different NDCs than those dispensed and dispensed drugs to patients with patient specific labels displaying the incorrect manufacture and/or NDC.

The settlement. Omnicare will pay the U.S. $7,415,357 plus interest at a rate of 1.65 percent per annum from October 24, 2016, until the day prior to payment no later than 15 days after the effective date of the agreement. In addition, Omnicare will pay $584,643 plus interest to the state Medicaid agreements. The U.S. will pay 1,371,841 plus accrued interest to the relators of the qui tam suit. Further, Omnicare will pay relators' reasonable expenses, attorney's fees (31 U.S.C. §3730(d)(1)) and resolve the relators claims under the FCA (see 31 U.S.C. §3730(h) pursuant to a separate settlement agreement.


Government intervenes in UnitedHealth fraud suit, alleges $1 billion in damages

By Wolters Kluwer Editorial Staff

A whistleblower's suit under the False Claims Act (FCA) (31 U.S.C. §3729 et seq.) against UnitedHealth Group (UnitedHealth), its subsidiaries, and other insurers for their role in allegedly bilking Medicare out of at least one billion dollars was recently unsealed, revealing the massive fraud allegations. The complaint alleges that beginning in 2006, UnitedHealth and its subsidiaries made tens of thousands of false risk adjustment claims through the Medicare Advantage (MA) program to obtain inflated reimbursements. The complaint was unsealed after the Department of Justice (DOJ) decided to intervene in the case against two of the 15 defendants, UnitedHealth Group and WellMed Medical Management, a UnitedHealth subsidiary. On May 16, 2017, the federal government filed its intervenor complaint and the relator filed a second amended complaint. The complaint seeks restitution, civil penalties, and treble damages under the FCA.

Allegations. The whistleblower was employed by a UnitedHealth subsidiary from 2004 to 2012. His complaint alleges that UnitedHealth violated the FCA by (1) operating numerous programs to increase its Medicare risk adjustment reimbursement by “over-coding” for various treatments; (2) failing to correct or reimburse false risk adjustment claims despite the existence of an internal auditor; (3) continuing to develop new program to identify opportunities for higher reimbursements; (4) encouraging its provider groups and adjustment vendors to submit false claims; and (5) failing or refusing to fix known errors.

Scheme. The MA program applied the managed care model used by private health insurance companies to Medicare. Rather than use a traditional fee-for-service model, as applied to the typical Medicare provider, MA pays a managed care organization a capitation rate (per-member-per-month), adjusted for each beneficiary by a payment to reflect risk factors such as age, gender, location, and health status. According to the complaint, UnitedHealth Group would “upcode” their risk adjustments by submitting claims for diagnoses that the beneficiary did not have, had in the past but had no more, or was for a more serious condition than the beneficiary actually had. UnitedHealth Group, through its subsidiaries, is the nation's largest provider of health insurance coverage for Medicare beneficiaries under Medicare Advantage contracts. It covers 2.2 million beneficiaries in all 50 states and the District of Columbia.


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Reimbursement

Latest changes to reporting formats for hospital quality of care have been released

By Wolters Kluwer Editorial Staff

The latest version of common formats for reporting on health care quality and patient safety at hospitals has been released. Three key changes were made: (1) data elements are now designated as either “core” or “supplemental” for reporting purposes, (2) event descriptions for each module were condensed, and (3) module-specific paper forms were eliminated. Beginning with this release, Hospital Version 2.0, the Agency for Healthcare Research and Quality (AHRQ) will not publish aggregate report specifications because the specifications are no longer needed to guide providers (Notice, 82 FR 22830, May 18, 2017).

Quality and safety data. Patient Safety Organizations (PSO) were established to collect, aggregate, and analyze confidential information on the quality and safety of health care delivery in the U.S. By establishing these organizations, Congress's intent was to create a framework within which doctors, hospitals, skilled nursing facilities, and other healthcare providers would submit confidential information on patient safety events and quality of care matters that would be used to identify and address events, patterns of care, and unsafe conditions that increase patient risks and hazards.

Common formats were developed and released in 2008 to direct health care providers to collect and submit standardized information and facilitate aggregation of comparable data. Separate common formats were established for three health care settings: hospitals, nursing homes, and community pharmacies. Within the hospital setting, common formats were established for (1) event reporting, (2) readmissions, and (3) surveillance. The new common formats now apply only to hospitals and only to event reporting.

Format changes. The changes to the common formats create two tiers, or data sets. The first tier, called the core data set, consists of information reported at the national level to the Patient Safety Organizations Privacy Protection Center (PSOPPC). The second tier, called the supplemental data set, consists of optional information not required to be reported to the PSOPPC. The supplemental data set may be used to support additional analyses at the local level. Furthermore, the aggregate report specifications that AHRQ published with versions of 1.0, 1.1, and 1.2 of the Common Formats for Event Reporting will no longer be published because they are no longer needed. Additional information on the common format changes is available at the PSOPPC website, www.psoppc.org/psoppc_web.


Court affirms HHS' finding of overpayments to ambulance company

By Wolters Kluwer Editorial Staff

An Ohio district court granted summary judgment to HHS affirming the HHS Secretary's conclusion that Medicare had overpaid Mansfield Ambulance, Inc. (Mansfield). Mansfield sought reimbursement for ambulance services provided to beneficiaries under Medicare Part B. To be reimbursed for such services, Medicare requires that the services be “medically necessary.” A CMS contractor conducted a sample review of 242 services billed by Mansfield, allowing 78 claims and denying 162 claims, a calculated payment error rate of 56.88 percent. Mansfield appealed CMS' findings. An administrative law judge (ALJ) hearing, followed by an appeal to the Medicare Appeals Council (Council), both affirmed the agency's findings of an overpayment of well over $300,000. The Secretary's final decision agreed with the ALJ and Council's conclusion that the ambulance company had been overpaid and owed Medicare the amount of the overpayment (Mansfield Ambulance, Inc. v. Department of Health and Human Services, May 10, 2017, Gaughan, P.).

Use of extrapolation. The ambulance company argued that HHS erred in using extrapolation to determine the amount of the overpayment. The court examined the statute that allows extrapolation, provided the Secretary determines that there is a “sustained or high level of payment error,” a decision, which is expressly excluded from judicial review. This preclusion of judicial review applies even when the administrative appeals process reduces the total overpayment due and the HHS orders re-extrapolation. The court concluded that based on the “clear and unequivocal statutory language,” the court could not review HHS' determination of a high level of payment error. Thus, the ambulance company's argument that HHS erred in not “re-determining” whether a high level of payment error exists is unreviewable and the argument was rejected.

Due process. The court rejected the ambulance company's claim that statistical sampling violates due process because the ambulance company will not be able to recover the repayment directly from the patient. The ambulance company failed to issue an Advance Beneficiary Notice (ABN) in cases that were nonemergency transport. As a result, the ambulance company would not be able to collect directly from patients. Next, the ambulance company argued that its due process rights were violated because of an “unidentifiable discrepancy” in the claims reviewed by two contractors retained by HHS. Essentially, the ambulance company claimed that due process is violated because it did not know the precise claims at issue and, therefore, could not respond in a meaningful way. This argument was rejected because the vendors provided detailed spreadsheets identifying the claims at issue. The ambulance company further argued that the addition of claims to the sample reviewed by the second vendor invalidated the sampling.

The court noted that the ALJ relied on two statisticians in concluding that the sampling methodology on which extrapolation was based was statistically sound. The ambulance company offered only “generalized attorney arguments suggesting that the inclusion of claims involved in the probe somehow” rendered the sampling invalid. The court found this was not sufficient to support a finding that the procedures afforded to the ambulance company to dispute the use of extrapolation violated due process. The court further found that the inclusion of pre-approved claims in the sampling did not violate due process or render the statistical sampling invalid.

Physician certification. The ambulance company argued that the presence of a physician certification (PC) for a patient automatically satisfied Medicare's “medical necessity” requirement, but the court rejected this argument. A PC does not conclusively establish “medical necessity.” The regulations expressly require that a service be “medically necessary” before payment will be made, “which is consistent with Medicare's entire scheme.” Rather, in the case of nonemergency scheduled transport services, a PC is required in addition to a determination of “medical necessity.” This interpretation is also consistent with the agency's interpretation. Mansfield Ambulance, Inc. v. Department of Health and Human Services, No. 1:16-cv-02016-PAG, May 10, 2017.


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Coding

AMA Coding Guidance: March 2017 CPT® Assistant

By Paul Clark

Coding for Endovascular Procedures for Dialysis Access

Nine new codes for endovascular procedures for dialysis access (36901-36909) were added, and four codes (36147, 36148, 36870, 75791) were deleted in the Current Procedural Terminology (CPT®) 2017 code set. These changes were made in response to a request from the Relative Value Scale Update Committee (RUC) Relativity Assessment Workgroup (RAW) to review the existing codes based on a screen identifying codes frequently reported together as well as a screen identifying rapidly growing services. The new codes bundle services that are commonly performed together. The CPT® 2017 codebook also includes extensive introductory language and parentheticals to help guide the use of this code set. This article discusses these changes and provides guidance on the appropriate use of these new codes.

Codes 36901-36909 bundle the typical surgical procedure(s) with related radiological supervision and interpretation (RS&I) services. Each of these codes includes direct percutaneous access(es) to the fistula (ie, punctures), catheterizations, catheter manipulations, roadmapping, imaging guidance, contrast injections, completion angiography, and closure of the punctures by any method. The codes are built on a progressive hierarchy, with lesser intensive services included in codes describing higher intensive services. For base codes 36901-36906, diagnostic angiography of the entire dialysis circuit is included, when performed. When interventions are performed, the code that describes the highest intensity service provided should be selected so that only one code is reported. For codes describing stent placement (36903, 36906), balloon angioplasty is included and is not separately reported, even if balloon angioplasty is performed on a separate lesion in the same dialysis segment.

Presumptive Drug Class Screening Changes

Important updates and revisions were made to the Pathology and Laboratory section of the CPT® 2017 code set. Because there is a significant amount of information to provide, this topic will be broken down into separate articles in 2017. The first installment includes discussions of the changes in the Presumptive Drug Class Screening (PDCS) code subsection. Future articles will discuss changes in the Multianalyte Assays with Algorithmic Analyses (MAAAs) subsection; changes to the molecular pathology sections of CPT, including changes in the Genomic Sequencing Procedures; and a discussion of the new Proprietary Laboratory Analysis (PLA) code set.

Presumptive Drug Class Screening. Five codes were deleted and three new codes were added to the PDCS subsection of the CPT® 2017 code set. Changes also were made to the guidelines. The five deleted codes (80300, 80301, 80302, 80303, 80304) separated the PDCS procedures into multiple types performed using simple direct optical observation (such as dipstick methods, cartridges), and instrumented immunoassay testing systems (such as discrete multichannel chemistry analyzers). Methodologies that typically required more resources than the drugs listed in Drug Class List A may include thin layer chromatography; and various procedures not otherwise specified (e.g., Time of Flight [TOF], Laser Diode Thermal Desorption [LDTD]). Drug Class List B procedures also may have included drug class specific preanalytical sample preparation. This separation of codes originally was intended to differentiate simpler, less expensive methods of presumptive testing from more expensive or complex testing.

Reporting Insertion of Spinal Biomechanical Device(s)

The CPT® code 22851, Application of intervertebral biomechanical devices(s) (e.g., synthetic cage(s), methylmethacrylate) to vertebral defect or interspace (list separately in addition to code for primary procedure) was identified by CMS in the July 1, 2008, Notice of Proposed Rulemaking (NPRM) for the 2009 Medicare Physician Fee Schedule (MPFS) on a list of fastest growing procedures. CMS also expressed concern about inappropriate use of the anterior instrumentation code for devices with integral fixation. The stakeholder societies believed that growth in utilization was attributed to inappropriate reporting of the placement of certain types of structural bone allografts in the disc space.

A CPT® Assistant article (November, 2010) discussed the correct reporting of 22851; however, in tandem with the publication of the CPT® Assistant article, code 22851 was identified by CMS in the July 19, 2011, Notice of Proposed Rulemaking (NPRM) for the 2012 MPFS as a high-expenditure procedure code that had not been surveyed since April 1995. After a review of utilization data by the stakeholder specialties, it was determined that code 22851 was reported for a variety of different cases that require different physician work and have different operative goals. A code change application was submitted to delete 22851 and create new codes that more accurately reflect the physician work involved in inserting spinal interbody and intervertebral biomechanical device(s). This article discusses the three new codes (22853, 22854, 22859) that were added to the CPT® 2017 code set and their appropriate use.

Frequently Asked Questions

Evaluation and Management: Case Management Services

Question: Is it appropriate to report Current Procedural Terminology (CPT®) code 99363 for anticoagulant management, initial 90 days of therapy, if the patient is admitted after those 90 days of therapy?

Answer: It is appropriate to report code 99363, Anticoagulant management for an outpatient taking warfarin, physician review and interpretation of International Normalized Ratio (INR) testing, patient instructions, dosage adjustment (as needed), and ordering of additional tests; initial 90 days of therapy (must include a minimum of 8 INR measurements) in this scenario for the initial 90 days of outpatient/ambulatory treatment as the patient was admitted to the hospital after the 90 days of outpatient anticoagulant management. However, usage of this code is inappropriate in relation to the subsequent hospitalization and outpatient care post hospitalization. This is because the procedure described by code 99363 is provided in the office or outpatient setting and is used for outpatient services only. A new period begins after discharge (assuming that the patient still requires anticoagulation management) and is reported using 99364, Anticoagulant management for an outpatient taking warfarin, physician review and interpretation of International Normalized Ratio (INR) testing, patient instructions, dosage adjustment (as needed), and ordering of additional tests; anticoagulation management, each subsequent 90 days of therapy (must include a minimum of 3 INR measurements).

Surgery: Musculoskeletal System

Question: What is the appropriate code to report the excision of a bony ossicle on the knee caused by Osgood-Schlatter disease?

Answer: Currently, there is no specific CPT® code that describes this procedure. Therefore, code 27599, Unlisted procedure, femur or knee, may be reported. When reporting an unlisted code to describe a procedure or service, it is necessary to submit supporting documentation (e.g., procedure report) along with the claim to provide an adequate description of the nature, extent, and need for the procedure; and the time, effort, and equipment necessary to provide the service.

Surgery: Digestive System

Question: What is the appropriate code to report a heterotopic liver allotransplantation (leaving the recipient organ in place while transplanting a donor liver in a different [ectopic] location)?

Answer: Code 47399, Unlisted procedure, liver, should be reported for heterotopic liver allotransplantation. In the past, code 47136 was used to report this procedure, but this code was deleted in the CPT® 2016 code set due to low utilization. When reporting an unlisted code to describe a procedure or service, it will be necessary to submit supporting documentation (e.g., procedure report) along with the claim to provide an adequate description of the nature, extent, and need for the procedure; and the time, effort, and equipment necessary to provide the service.

Medicine: Psychiatry

Question: If a provider spends 20 minutes providing psychotherapy services to the patient's family without the patient being present, is it appropriate to report code 90846 with a reduced modifier appended?

Answer: No. It is not appropriate to append modifier 52 (Reduced Services) to time-based codes. Code 90846, Family psychotherapy (without the patient present), 50 minutes, requires a minimum of 26 minutes and .therefore. cannot be reported for 20 minutes of service.

To view these articles via Coding Comply, search from the Search Code Sets tab in Coding Comply for any of the codes listed above, view the Related Documents by clicking on the paper icon next to the code, then select the article. To view these articles in The Coding Suite, go to the CPT® Assistant Archives folder and in the Search field within this folder and enter “March 2017.”


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Reform

HHS again delays effective date of 340B ceiling price, CMP regulations

By Susan Smith, J.D., M.A.

After consideration of comments received regarding the effective date for the 340B Drug Pricing Program ceiling price and manufacturer's civil money penalties (CMPs) regulations, HHS has further delayed the effective date from May 22, 2017, to October 1, 2017. HHS is delaying enforcement to October 31, 2017, to correspond with the new effective date of the regulations. Although a number of commenters supported the May 22, 2017, effective date expressing concerns about lack of oversight, regulation, and enforcement, HHS disagreed. According to HHS, the delay of the effective date provides stakeholders sufficient time to implement and comply with the new program requirements and is particularly important when the effective date is paired with potential CMPs.

340B program. The 340B program, under 42 U.S.C. §256b, is based upon pharmaceutical pricing agreements (PPAs) entered into between HHS and certain drug manufacturers. When a drug manufacturer enters into a PPA, the manufacturer agrees to charge 340B covered entities for covered outpatient drugs at prices that do not exceed ceiling prices. The ceiling prices are based upon quarterly pricing data from CMS.

Ceiling price and CMPs. The Final rule (82 FR 1210, January 20, 2017) requires manufacturers to calculate the 340B ceiling price for each covered outpatient drug on a quarterly basis. The 340B ceiling price is equal to the average manufacturer price from the preceding calendar quarter for the smallest unit of measure, using the Unit Rebate Amount. Additionally, a manufacturer must estimate the 340B ceiling price for a new covered outpatient drug as of the date the drug is first available for sale. The Final rule also establishes that any manufacturer with a PPA that knowingly and intentionally charges a covered entity more than the ceiling price for a covered outpatient drug may be subject to a civil money penalty of up to $5,000 for each instance of overcharging, as mandated by Section 7102 of the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148) (see 340B gets teeth with CMPs, January 5, 2017).

Delays of effective date. The Final rule originally had a March 6, 2017 effective date; however, the preamble stated that enforcement was not to begin until the beginning of the second quarter. HHS issued a subsequent Final rule (82 FR 12508, March 6, 2017) pursuant to the new administration's regulatory freeze that postponed the effective date until March 21, but the postponement did not affect the April 1 enforcement date. On March 20, 2017, HHS issued another Interim final rule (82 FR 14332) delaying the effective date until May 22, 2017, and soliciting comments on whether the effective date should be further delayed until October 1, 2017 (see 340B rule sinks deeper into regulatory freeze, March 23, 2017). Final rule, 82 FR 22893, May 19, 2017


CMS announces final values for calculating BHP payment rates

By Susan Smith, J.D., M.A.

CMS has identified the final values for the factors needed to calculate the federal Basic Health Plan (BHP) payment rates for 2018, which include the income reconciliation factor, the premium tax credit formula, and the premium trend factor. On February 29, 2016, CMS published the federal funding methodology and data sources necessary to determine federal payment amounts made in program years 2017 and 2018 to states that elect to establish a BHP to offer health benefits coverage to low-income individuals otherwise eligible to purchase coverage through health insurance marketplaces (see Basic Health Plan funding for 2017 finalized, March 2, 2016), The 2018 values for these factors were not included because they were not available. The final values do not alter the payment methodology or definitions of any of the factors (CMS Informational bulletin, May 17, 2017).

The Basic Health Program. Section 1331 of the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148) provides states with an option to establish a BHP In the states that elect to operate BHP, BHP will make affordable health benefits coverage available for individuals under age 65 with household incomes between 133 percent and 200 percent of the federal poverty level (FPL) who are not otherwise eligible for Medicaid, the Children's Health Insurance Program (CHIP), or affordable employer sponsored coverage, or individuals whose income is below these levels but are lawfully present noncitizens ineligible for Medicaid. CMS is responsible for developing the formula to calculate the amount of federal funding available for a state's BHP.

Federal funding for a state BHP is based on the amount of the premium tax credit and cost-sharing reductions that would be provided for a BHP enrollee if, instead, the enrollee were enrolled in a qualified health plan (QHP) through the health insurance marketplace. Initially, states are paid based on the projected BHP enrollment for the upcoming quarter, however, in a subsequent quarter payment, the initial payment is reconciled with actual enrollment data from the state.

Updated values. CMS provided the final values as follows:

  • Income reconciliation factor (IRF). For 2018, the Office of Tax Analysis (OTA) in the Department of the Treasury has estimated that the IRF for states that have implemented the Medicaid eligibility expansion to cover adults up to 133 percent of the federal poverty level (FPL) will be 97.37 percent, and for states that have not implemented the Medicaid eligibility expansion and do not cover adults up to 133 percent of the FPL, the IRF will be 97.45 percent. The value of the IRF for 2018 is 97.41 percent, which is the average of the factors, rounded to the nearest hundredth of one-percent.
  • Premium tax credit formula. CMS will use the formula described in 26 U.S,C. §36B(b) to calculate the estimated premium tax credit (PTC) that would be paid on behalf of a person enrolled in a QHP in a marketplace as part of the BHP payment methodology. CMS has provided a Table that provides the applicable FPL percentages applied on a sliding scale to determine the initial and final premium percentage.
  • Premium trend factor. CMS will use the annual growth rate in private health insurance expenditures per enrollee from the National Health Expenditure projections, developed by the Office of the Actuary in CMS for the premium trend factor. The premium trend factor for 2018 is equal to the projected increase in private health insurance premiums per enrollee, which is 5.3 percent.

Options for 2018 BHP funding methodology. States operating a BHP for 2018 of the need to make two decisions, whether to: (1) to develop a retrospective population health factor (PHF) adjustment methodology; and (2) use the 2017 or 2018 QHP premiums as the basis for calculating the 2018 BHP federal payments. States operating a BHP had until May 15, 2017, to notify CMS that it elected to use the 2017 premiums adjusted by the premium trend factor of 5.3 percent as the basis for the 2018 BHP federal payments. If the state did not notify CMS of its intent by that date, the 2018 QHP premiums will be used.

A state electing the option to implement a retrospective population health status adjustment is required to submit a proposed protocol to CMS as part of the BHP payment methodology, subject to CMS approval and certification by the Chief Actuary of CMS in consultation with the Office of Tax Analysis. The state must submit a proposed protocol for the 2018 program year by August 1, 2017. If a state does not submit a PHF methodology by that date, no adjustment will be made. CMS must approve the state's protocol no later than December 31, 2017, for the 2018 program year.


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Life Sciences

State failure to warn claim not pre-empted where FDA had proposed same warnings

By Wolters Kluwer Editorial Staff

The district court erred in granting summary judgment to a drug manufacturer based on federal preemption and an impossibility of compliance with federal and state law, where the FDA previously had proposed the same warning regarding use during pregnancy, the U.S. Court of Appeals for the Tenth Circuit has ruled. The district court did not explain why a state claim based on the FDA's own proposed language would be preempted by federal law; however, as to a warning regarding pre-pregnancy use of the drug, clear evidence established that the FDA would not have approved of the patient's desired warnings.

Background. Over twenty years ago a woman gave birth to a son with birth defects after having used the infertility drug Clomid manufactured by Aventis, Inc. (Aventis) in 1992 prior to becoming pregnant. She and her husband sued Aventis asserting various state tort claims under Utah law including failure to warn under theories of strict liability and negligence, breach of implied warranty, negligent misrepresentation, and fraud. The district court granted summary judgment to Aventis based on federal preemption, reasoning that the FDA would not have approved the drug warnings that the parents alleged were required under Utah law. The district court had concluded that Aventis could not have complied with both federal and state law. The summary judgment was granted as to all claims, and the parents appealed.

Two failure to warn theories. The parents presented two theories pointing to two types of warning labels that Aventis allegedly had failed to provide: (1) a label that warned of risks to the fetus when a woman takes Clomid before becoming pregnant, and (2) a label that unmistakably warned about harm to the fetus when Clomid is taken during pregnancy. For both theories, they cited a warning that the FDA proposed in 1987, which stated that “Clomid may cause fetal harm when administered to pregnant women.” For their first theory, they argued that this proposed warning demonstrated the FDA's willingness to approve warnings for women taking Clomid prior to pregnancy. For their second theory, they argued that (1) the warning clearly informed women of risks to the fetus if taken during pregnancy, and (2) the mother would not have taken Clomid if Aventis had used the FDA's proposed wording. The district court rejected the claims based on preemption.

The appeals court ruled that the district court ruling of preemption was correct as to the first theory, because the undisputed evidence showed that the FDA would not have approved a warning about taking Clomid before pregnancy. But as to the second theory, the district court did not explain why a state claim based on the FDA's own proposed language would be preempted by federal law.

Clomid's regulatory history. The FDA requires brand-name manufacturers to obtain approval of their proposed drug labeling and, if the drug application is approved, the manufacturer generally is restricted from changing the label without advance permission from the FDA. Since Clomid entered the market in 1967, its labels have consistently warned about the risk of fetal harm if the mother takes Clomid while pregnant. However, in 1986, the FDA ordered Aventis to add a “Pregnancy Category X” designation to the label that would indicate that “the risk of the use of the drug in a pregnant woman clearly outweighs any possible benefit.” The FDA recommended this designation on the ground that Clomid does not benefit pregnant women and any risk to pregnant women would be unjustified. Aventis resisted this change, and the FDA acknowledged a dilemma: Aventis needed to warn about taking Clomid during pregnancy, but no woman who was pregnant would have any reason to take Clomid. In light of this dilemma, the FDA suggested in 1987 that Aventis change the label to include the warning: “Since there is a reasonable likelihood of the patient becoming pregnant while receiving Clomid, the patient should be apprised of the potential hazard to the fetus.” Aventis eventually added a similar warning, but only after the mother gave birth to the son with birth defects.

Three types of preemption. The court noted that there are three types of preemption: (1) express preemption, which occurs when the language of the federal statute reveals an express congressional intent to preempt state law; (2) field preemption, which occurs when the federal scheme of regulation is so pervasive that Congress must have intended to leave no room for a State to supplement it; and (3) conflict preemption, which occurs either when compliance with both the federal and state laws is a physical impossibility, or when the state law stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress.

Aventis contended that a form of conflict preemption known as impossibility preemption applied because compliance with both the federal and state laws was a physical impossibility.

Preemption and the clear evidence standard. Although the parents contended that their state law claim as to labeling was not preempted, the court noted that a state tort claim is indeed preempted if a manufacturer presents clear evidence that the FDA would have rejected an effort to strengthen a label's warning, and the court applied the “clear evidence” test to the instant case. It is a question of fact as to whether the clear evidence test has been satisfied, and the court ruled that a state-law failure-to-warn claim will only be preempted if a finder of fact concludes that it is highly probable that the FDA would not have approved a label change. The court then considered the issues of: (1) whether Aventis presented clear evidence that the FDA would have disapproved of the warnings suggested by the parents, and (2) whether a reasonable juror could conclude that the FDA would have approved those warnings.

Regulatory history alone not determinative. The FDA's approval of Clomid's labels suggested only that the FDA knew about potential issues involving pre-pregnancy use of Clomid—not that the FDA would have rejected a stronger warning if one had been proposed. As a result, the court found that Clomid's regulatory history alone did not constitute clear evidence that the FDA would have rejected the warnings desired by the parents. The court looked outside of that history and considered the impact of a citizen's petition.

Consideration of a citizen's petition as clear evidence. Aventis pointed to the FDA's rejection of a citizen's petition as meeting the clear evidence standard. In his citizen's petition, a petitioner to the FDA presented arguments virtually identical to that of the parents, including that taking Clomid prior to pregnancy risks fetal harm because (1) Clomid has a long half-life and is biologically active well into the second month of pregnancy when most organs are being formed and can accumulate with multiple courses of treatment, and (2) Clomid inhibits cholesterol, which may endanger the developing fetus. Accordingly, the petitioner urged stronger warnings for Clomid.

In 2009, the FDA denied the citizen's petition, and Aventis argued that the denial constituted their sought-after clear evidence that the FDA would not have approved of a warning in 1992 about the risks of taking Clomid prior to pregnancy. The parents noted a high rate of FDA denials for such petitions as reason to reject Aventis' contention; however, the court concluded that the FDA's denial of the citizen's petition constituted clear evidence that the FDA would not have approved the parents' desired warning of the risks of taking Clomid prior to pregnancy.

Reversal and remand. Based on the foregoing, the appellate court reversed the grant of summary judgment to Aventis as to the failure to warn claims, but upheld the ruling as to the parents' theory that Aventis had a duty to warn of the risks of using Clomid prior to pregnancy—the claims based on that theory were preempted by federal law. On remand, the district court was directed to further address the claim based on the failure to use the FDA's own wording on the risk of harm to the fetus when Clomid is taken during pregnancy. Cerveny v. Aventis, Inc., May 2, 2017


No sugarcoating it, 'evaporated cane juice' case moving forward

By Sheila Lynch-Afryl, J.D., M.A.

Consumers' challenge to the practice of labeling Late July Snacks' products with the term “evaporated cane juice” (ECJ), a misleading term for sugar, will proceed because the complaint sufficiently pled that a reasonable consumer would be concerned about added sugar and misled by the manufacturer's misrepresentation.

The federal Food, Drug, and Cosmetic Act (FDC Act) requires that ingredients be listed by their common or usual names, which are the names established by common usage or by regulation. The court waited for FDA to finalize a 2009 draft guidance on use of the term ECJ (see Evaporated cane juice labeling case stayed to await FDA guidance, June 2, 2014; Sweet or sour, time running out on evaporated cane juice decision hour, May 18, 2015). When the final guidance document was issued May 25, 2016, the FDA stated that the term ECJ is not the common or usual name of any type of sweetener. Further, the term ECJ is false or misleading because it suggests that the sweetener is juice or made from juice and does not reveal that its basic nature and characterizing properties are those of sugar, the FDA said.

The consumers, purchasers of Late July's crackers and chips, filed a second amended complaint alleging unjust enrichment and violations of the California Unfair Competition Law, False Advertising Law, and Consumer Legal Remedies Act. The manufacturer filed a motion to dismiss, which was denied as to the fraud-based claims. The misrepresentation was material, as a reasonable consumer would be concerned about added sugar and would be deceived by the use of ECJ. Sugar is a known health risk, and dietary guidelines distinguish between added sugars and naturally occurring sugars. The FDA has stated that the term ECJ falsely suggests that the sweeteners are juice, which is confusingly similar to the more common use of the word juice.

Nor were the claims preempted by the FDC Act. While the manufacturer claimed that the consumers were attempting to impose a requirement to label “added sugar,” they never alleged that it was required to warn of added sugars. Further, the consumers could assert liability for the period before the FDA released its final guidance because Late July had notice as early as 2009 that the FDA considered the term ECJ to be false and misleading. Swearingen v. Late July Snacks LLC, May 5, 2017


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