Health News Update

A comprehensive resource for professional healthcare information and solutions

In This Issue
Welcome to Health News Update

We have updated and consolidated our Health NetNews emails into one of the most comprehensive sources of professional health care information and solutions. Covering important monthly developments in the areas of Health Care Compliance, Medicare and Medicaid Reimbursement, Coding, Health Reform, and Food and Drug Law, we hope this resource provides useful content and features.

On the Front Lines
Move beyond MIPS, MedPAC tells Congress

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

The Merit-based Incentive Payment System (MIPS) should be eliminated, advised the Medicare Payment Advisory Commission (MedPAC) in its annual report to Congress on Medicare payment policy. In addition, it again advocated for reform of the post-acute care payment systems, warning that "the cost of inaction is mounting." MedPAC also gave a report on telehealth services, as mandated by the 21st Century Cures Act of 2016 (P.L. 114-255).

MIPS. MedPAC concluded that MIPS "will not fulfill its goals and therefore should be eliminated" as soon as possible because the basic design of MIPS is "fundamentally incompatible with the goals of a beneficiary-focused approach to quality measurement." It recommended the establishment of a new voluntary value program in fee-for-service (FFS) Medicare in which: (1) clinicians can elect to be measured as part of a voluntary group; and (2) clinicians in voluntary groups can qualify for a value payment based on their group's performance on a set of population-based measures.

Post-acute care payment systems. MedPAC again urged Congress to make changes to the post-acute care payment systems (skilled nursing facilities (SNFs), home health agencies, inpatient rehabilitations facilities (IRFs), and long-term care hospitals (LTCHs)) (see 'Concerned' MedPAC suggests improvements to MACRA programs, Part B drug payments, June 21, 2017; MedPAC makes 2018 payment recommendations, March 16, 2017). This unified payment system would base payments on patient characteristics and could lower costs and ensure access for patients who are less desirable financially under current payment systems. MedPAC recommended in 2019, as an initial step, to blend the relative weights in each of the setting-specific payment systems with those of the unified post-acute care system.

MedPAC also made the following payment recommendations:

  • no update to SNF payment rates for two years (2019 and 2020) and the implementation of a revised SNF PPS in 2019;
  • no payment update in 2019 for LTCHs;
  • a 5 percent reduction in the home health prospective payment system base payment rate for 2019 and a two-year rebasing beginning in 2020; and
  • a 5 percent reduction in the IRF payment rate for fiscal year 2019.

MedPAC also reiterated its 2016 recommendations to expand the IRF outlier pool and review IRF patterns of case mix and coding.

Other Medicare FFS payment systems. For 2019 MedPAC recommended that Congress update the acute care hospital, physician and other health professionals, and outpatient dialysis rates by the amount determined under current law. It recommended no payment update in 2019 for the hospice and ambulatory surgical center (ASC) payment systems. It also suggested that the HHS Secretary could begin collecting cost data from ASCs.

Health spending. In 2016, total national health care spending was $3.3 trillion, or 17.9 percent of gross domestic product (GDP). Private health insurance spending was $1.1 trillion, or 6.0 percent of GDP. Medicare spending was $672.1 billion, or 3.6 percent of GDP. Actuaries estimated that national health care spending grew 5.4 percent from 2013 to 2015 and Medicare spending grew 4.9 percent. The increase in the national health care spending growth rate was largely due to the continued effects of coverage expansions for health insurance that commenced in 2014 under the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148). MedPAC Report, March 20, 2018

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FCA claims concerning inpatient Medicare payments survive dismissal motion

By the Wolters Kluwer Editorial Staff

A federal judge in Pennsylvania found that a former employee of Executive Health Resources (EHR) alleged with particularity that EHR had submitted material misrepresentations for the payment of Medicare claims. Accordingly, the former employee had properly pleaded his case under the False Claims Act (FCA) (31 U.S.C. § 3729 et seq.) and EHR's motion to dismiss was denied.

Medicare compliance expert. EHR marketed itself as a compliance expert that could help client hospitals navigate Medicare rules and increase revenues for the hospitals by billing more lucrative inpatient Medicare claims. EHR contracted with hospitals to review inpatient/outpatient classifications for Medicare cases and appeal Medicare denials when Medicare denied payment. EHR recommended that client hospitals refer all cases that failed screening for inpatient status for its review. To generate its classifications, EHR used secret proprietary classification tools called "EHR Logic."

Medicare fraud alleged. While working at EHR and, subsequently, several client hospitals, the former employee learned that EHR allegedly routinely provided client hospitals with certifications of inpatient status for Medicare patients—more lucrative than outpatient—that violated or ignored relevant Medicare rules. The client hospitals would submit Medicare reimbursement claims for inpatient care, which were typically accepted, without including the EHR certification. At one particular client hospital, 78 percent of cases initially coded by physicians as inpatient that failed screening for inpatient status were coded by EHR as inpatient, and 32 percent of cases initially certified as being in "observation" status and 55 percent of cases certified as outpatient were certified by EHR as inpatient.

FCA action filed. The former employee sued EHR under the FCA claiming an ongoing scheme to defraud the government by having clients file claims for inpatient services that should have been handled on an outpatient basis. EHR argued that the former employee failed to allege materiality and did not make his allegations with particularity and, therefore, his complaint should be dismissed.

Materiality. Finding that the former employee sufficiently alleged materiality, the court denied EHR's motion to dismiss. The court noted that a misrepresentation about compliance with a legal requirement must be material to the government's decision to pay to be within the scope of the FCA. A misrepresentation is "material" if it is likely to have an effect on the behavior of the recipient of the misrepresentation.

The court found that it was plausible that if the government knew that certain factors for determining inpatient status were ignored, it might have refused payment. Based on the facts the former employee had alleged, Medicare had no way of knowing whether EHR had been involved in the submission of particular claims. Accordingly, the court found that the allegations regarding the former employee's experience at client hospitals plausibly alleged that EHR's false inpatient certifications were material to the government's decision to pay Medicare claims.

In making this ruling, the court noted that the former employee correctly asserted that the allegations contained in his complaint were required to be read in conjunction with the allegations contained in previous pleadings. Moreover, the court found that the former employee correctly argued that EHR allegations that the government was already investigating EHR at the time of the events detailed in the complaint, should not be considered when deciding the motion to dismiss, which should properly be confined to the four corners of the complaint. EHR could raise this issue after discovery in a summary judgment motion.

Particularity. The court also ruled that the complaint met the standards for particularity in FCA actions. The district court noted that in the Third Circuit, to survive a dismissal motion, an FCA complaint must allege particular details of a scheme to submit false claims together with reliable indicia that lead to a strong inference that claims were actually submitted. Although the former employee necessarily lacked knowledge of the secret, proprietary information used to generate inpatient certifications after he left employment at EHR, he provided ample information from his jobs at EHR client hospitals to allege plausibly that EHR was engaged in a scheme to cause hospitals to submit large numbers of false inpatient Medicare claims, including large numbers of cases at the hospitals where the ex-employee worked that initially failed inpatient criteria. Polansky v. Executive Health Resources, Inc., Civil Action No. 12-4239, March 19, 2018

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Equitable recoupment of Medi-Cal fees doesn't violate automatic stay

By the Wolters Kluwer Editorial Staff

A bankruptcy court did not err when it found that California's Department of Healthcare Services (DHCS) properly withheld a percentage of Medi-Cal payments and supplemental hospital quality assurance (HQA) funds owed to a debtor to recover unpaid HQA fees owed by the debtor, without violating the automatic stay. The withholding, which occurred following filing of the bankruptcy petition, fell under the doctrine of equitable recoupment.

Medi-cal payments and fees. Gardens Regional Hospital and Medical Center, the debtor in the bankruptcy action, held a Medi-Cal Provider agreement with DHCS. Under the Medi-Cal Hospital Reimbursement Improvement Act, certain types of hospitals are required to pay a quarterly HQA fee, which is ascertained by a complex formula. After the fees are collected, the DHCS redistributes them to hospitals through various types of quality assurance payments, including direct grants, supplemental quality assurance payments to private hospitals, additional fees to hospitals providing treatment pursuant to Medi-Cal managed care plans, and payments for children's health care.

Bankruptcy action and withholding. The debtor stopped paying the required HQA quarterly fees in March 2015 and, by the time the petition was filed in June 2016, owed $699,173.15 in HQA fees. After the bankruptcy petition was filed, DHCS began withholding 20 percent of Medi-Cal payments owed to the debtor as well as an unspecified percentage of the supplemental HQA payments owed to the debtor. Although DCHS recouped the pre-petition debt, it continued withholding because the debtor failed to pay post-petition HQA fees. Subsequently, the debtor filed a motion for relief, arguing that the DCHS violated the automatic stay.

Equitable recoupment. The bankruptcy court ruled that DHCS's post-petition withholding of Medi-Cal and supplemental hospital quality assurance HQA was permissible under the doctrine of equitable recoupment. Although recoupment is not mentioned in the bankruptcy code, it is a common law equitable doctrine defined as "the setting up of a demand arising from the same transaction as the plaintiff's claim of action, strictly for the purpose of abatement or reduction of such claim," the court stated, citing a Ninth Circuit case.

The court examined in depth what constitutes the "same transaction," noting that the Ninth Circuit applies the "logical relationship" test. The court must decide whether the counterclaim arises from the same set of operative facts as the initial claim. Ultimately, the different transactions have to be "sufficiently interconnected so that it would be unjust to insist that one party fulfill its obligation without requiring the same of the other party," the court said.

The appellate court agreed with the bankruptcy court's finding that there was an interconnection between the transactions sufficient to meet the logical relationship test. With respect to the supplemental payments, the appeals court noted that without the HQA fees, DCHS would not have the resources to pay supplemental HQA payments. This is true even though the transactions at issue do not correspond exactly. Gardens Regional Hospital and Medical Center, Inc. v State of California, BAP No. CC-17-1198-LKuF, March 12, 2018

Medical claims assignee lacked standing to sue under the MSPA

By the Wolters Kluwer Editorial Staff

An assignee of medical claims lacked standing to sue the Ace American Insurance Company as primary payer for reimbursement under the Medicare Secondary Payer Act (MSPA) because only (1) Medicare beneficiaries, (2) Medicare Advantage Organizations (MAOs), and (3) direct health care providers to Medicare beneficiaries have standing to sue under the MSPA. Although the assignee, MSP Recovery Claims, stood in the shoes of the three companies that assigned medical claims to it, none of those assignor companies were Medicare beneficiaries, MAOs, or direct providers, according to a Florida federal district court. The court granted Ace American Insurance's motion to dismiss the claim with prejudice because MSP Recovery Claims had failed four times to plead sufficient facts to establish standing.

Background. MSP Recovery Claims is in the business of obtaining assignments from various entities to recover reimbursement for payments made for the medical expenses of Medicare beneficiaries that should have been made by a private insurer, as determined by the MSPA (42 U.S.C. §1395y(b)). MSP Recovery Claims obtained assignments from Hygea Holdings Corp., MMM Holdings, LLC, and Health Care Advisor Services, all of whom had paid for Medicare expenses that allegedly should have been paid by Ace American Insurance Company as primary payer. MSP Recovery Claims filed suit in Miami federal court against Ace American Insurance under the MSPA, seeking double damages. Ace American Insurance filed a motion to dismiss for lack of standing.

MSPA standing generally. The MSPA establishes a private cause of action under 42 U.S.C. §1395y(b)(3)(A). The courts have determined, however, that not just any private person has the right to sue under the MSPA. Only parties that have themselves suffered an injury under the statute may sue. Because an assignee stands in the shoes of the assignor, whether MSP Recovery Claims had standing was determined by whether any of its three assignors had standing: (1) Hygea; (2) Health Care Advisor Services; and (3) MMM Holdings.

Hygea standing. The court concluded that Hygea did not qualify for any one of three categories that qualify for standing; therefore, it could not confer standing to MSP Recovery Claims. The complaint failed to allege the relationship between Hygea and any of the medical providers that treated the Medicare beneficiaries for whom Hygea paid claims. Further, Hygea was not a Medicare beneficiary or a Medicare Advantage organization (MAO). Finally, a list of services provided to the Medicare beneficiaries, which was attached to the complaint, did not listed Hygea as one of the providers.

Health Care Advisor Services standing. As with Hygea, the complaint failed to allege the relationship between Health Care Advisor Services and the Medicare beneficiary for whom it paid claims. The standing analysis depended upon whether Health Care Advisor Services could be described as an MAO or a direct provider. For the same reasons that Hygea was determined to be neither an MAO nor a direct provider, the court determined that Health Care Advisor Services was neither an MAO nor a direct provider. As a result, Health Care Advisor Services could not confer standing on MSP Recovery Claims.

MMM Holdings standing. In one of its amendments to the original complaint, MSP Recovery Claims described MMM Holdings as a Puerto Rico-based MAO. Because this was a factual attack on MMM Holdings' standing, the court had the right to consider matters outside of the pleadings to determine whether MMM Holdings was an MAO. MMM Holdings was not included on CMS' website, which provides an updated list of MAOs. A similar entity, however, called MMM Healthcare LLC was listed. Although MSP Recovery Claims contended that the two entities were one and the same, no facts in the complaint ever established that they were the same entity. As a result, because MMM Holdings was not listed on the CMS website as an MAO, the court concluded that it was not an MAO. Therefore, MSP Recovery Claims had no standing through MMM Holdings. MSP Recovery Claims, Series LLC v. Ace American Insurance Company, No. 17-CV-23749, March 9, 2018

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AMA Coding Guidance: January 2018 CPT® Assistant

Edited by Wolters Kluwer Editorial Staff

Proprietary Laboratory Analyses Technical Corrections

Technical revisions and corrections in the Pathology and Laboratory/Proprietary Laboratory Analyses (PLA) subsection of the Current Procedural Terminology (CPT®) code set have taken effect on January 1, 2018. PLA codes are used to report proprietary clinical laboratory analyses that may be offered by a single laboratory, or may be licensed and/or marketed to multiple laboratories. Introductory guidelines to the PLA subsection and to Appendix O were extensively revised; a new code symbol (?) was introduced to identify PLA codes that have the same descriptors, which can only be distinguished by the listed proprietary test; and new parenthetical notes were added after codes 0007U and 0020U. Additional PLA codes are released every quarter by the American Medical Association (AMA) to make them readily available for use. Revisions and corrections along with the latest published errata are available on the AMA website at Newly released CPT® PLA codes are published at

Reporting Fracture and Restorative Care and Dislocations

The Surgery/Musculoskeletal System subsection guidelines in the CPT® code set address coding issues related to reporting application of casts, splints, and strapping—with or without restorative treatment and references to anesthesia in the joint dislocation–treatment codes. This article is intended to: (1) ensure the correct reporting of these codes, (2) ensure the correct use of modifier for all fracture and/or dislocation treatment codes, and (3) answer questions about cast, splint, and strapping codes (29000-29799). The article focuses on the following topics and provides examples of coding in specific situations.

  • reporting initial cast, splint, or strapping service;
  • coding for replacement cast, splint or strapping;
  • coding for temporary casts, splints, or strapping;
  • coding fracture treatment in the ED;
  • anesthesia for fracture care and other musculoskeletal services; and
  • removal of external fixation (hardware).

Frequently Asked Questions

Surgery: Musculoskeletal System

Question: A surgeon performed arthroscopic surgery in which a biceps tenotomy for a torn biceps with debridement of the stump is performed. Are the debridement and biceps tenotomy separately reported?

Answer: Yes, the debridement and biceps tenotomy are separately reported with Current Procedural Terminology (CPT®) code 29823, Arthroscopy, shoulder, surgical; debridement, extensive, since the biceps tendon origin is divided roughly in half between the supraglenoid tubercle and the superior labrum. Therefore, the arthroscopic tenotomy of the biceps would be part of a glenohumeral debridement (eg, codes 29822 or 29823) and may be reported separately.

Surgery: Digestive System

Question: What is the appropriate CPT code to report a laparoscopic paracolostomy hernia repair that includes placement of mesh?

Answer: CPT code 49654, Laparoscopy, surgical, repair, incisional hernia (includes mesh insertion, when performed); reducible, or code 49655, Laparoscopy, surgical, repair, incisional hernia (includes mesh insertion, when performed); incarcerated or strangulated, should be reported for this procedure depending on whether the hernia was reducible or incarcerated/strangulated.

Question: If hemorrhoid banding is performed during a colonoscopy, is code 45398, reported alone, or should codes 45378 and 46221 be reported? The operative note states "Non-bleeding internal hemorrhoids were observed upon retroflexion of the colonoscope. As a separate procedure, the slotted anoscope was inserted, directed toward the column of hemorrhoid to be banded. The hemorrhoid was banded in the usual fashion using the suction ligator with the Barron technique and the right posterior column of hemorrhoids was banded."

Answer: Code 45398, Colonoscopy, flexible; with band ligation(s) (eg, hemorrhoids), may only be reported if the banding was performed through the colonoscope and if the scope is passed to the cecum. The operative note specifically states that the banding was performed through an anoscope as a separate procedure. Therefore, it would be appropriate to report code 45378, Colonoscopy, flexible; diagnostic, including collection of specimen(s) by brushing or washing, when performed (separate procedure), if the scope is passed to the cecum and the entire colon is examined and code 46221, Hemorrhoidectomy, internal, by rubber band ligation(s), for the hemorrhoid banding. Code 46221 includes diagnostic anoscopy (46600) and, therefore, code 46600 would not additionally be reported.

Surgery: Endocrine System

Question: Is water-deprivation testing reported with a laboratory testing code or with an evaluation and management (E/M) code?

Answer: Water-deprivation testing is performed to ensure adequate dehydration and maximal stimulation of the antidiuretic hormone (ADH), which helps the kidneys manage the amount of water in the body. ADH testing (84588) is typically performed in patients with more chronic forms of diabetes insipidus (DI). The extent of deprivation is usually limited by the patient's thirst or by any significant drop in blood pressure or related clinical manifestation of dehydration. From a CPT coding perspective, there are no specific services, procedures, or tests that are always performed for water-deprivation testing. Code selection is based on what is actually done. Typically, when water-deprivation testing is performed, an E/M code is reported in which time determines the level of service. However, in some cases, a procedure may be performed based on the patient's circumstances. In addition, the appropriate CPT codes are reported for procedures and services, such as IV placement, as well as for any laboratory tests that are medically necessary.

Surgery: Nervous System

Question: What is the appropriate code to report an erector spinae plane (ESP) block for postoperative pain in which the needle is inserted at the T5 transverse process under ultrasound guidance? A local anesthetic test dose was delivered and a catheter was threaded. This particular ESP block was for post-thoracotomy chest wall pain.

Answer: There is no specific CPT code that describes this service; therefore, code 64999, Unlisted procedure, nervous system, should be reported for the ESP block. When reporting an unlisted code to describe a procedure or service, it will be necessary to submit supporting documentation (eg, 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.

Question: What is the appropriate code to report a quadratus lumborum block, which is a fascia plane block of the abdominal wall used for postoperative pain?

Answer: There is no specific CPT code that describes this service; therefore, code 64999, Unlisted procedure, nervous system, should be reported for a quadratus lumborum block. When reporting an unlisted code to describe a procedure or service, it will be necessary to submit supporting documentation (eg, 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.

Question: What code(s) is used to report an injection on the superior medial and lateral branches and the inferior medial branch of the left genicular nerve performed for destruction with a neurolytic agent?

Answer: Code 64640, Destruction by neurolytic agent; other peripheral nerve or branch, may be reported for each nerve destruction. Therefore, if destruction is performed on the superior medial and lateral branches and the inferior medial branch of the left genicular nerve, it would be appropriate to report code 64640 three times or report code 64640 once with three units of service based on payer preference. The coder should append modifier 59, Distinct Procedural Service, to the second and subsequent listings of code 64640 to separately identify these procedures.

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 "January 2018."

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CBO, JCT issue cost estimate for Bipartisan Health Care Stabilization Act

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

The proposed enactment of the Bipartisan Health Care Stabilization Act of 2018 (BHCSA), would increase the deficit by $19.1 billion over the 2018-2027 period relative to Congressional Budget Office's (CBO) baseline, according to the CBO's cost estimate. In each year from 2019 through 2022, the legislation would increase the number of people with health insurance coverage by fewer than 500,000 people as compared with the baseline projection. Direct spending and revenues would be effected by the enactment, thus pay-as-you-go procedures would apply. The CBO and the Joint Committee on Taxation (JCT), however, estimated that enacting the legislation would not increase net direct spending or on-budget deficits in any of the four consecutive 10-year periods beginning in 2028.

BHCSA changes in health care laws. The CBO and JCT identified several changes the legislation would make to health care laws, including:

  • The state innovation waiver process established by section 1332 of the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148) would be changed. For example, states would no longer need to enact legislation before submitting a waiver application and the standards by which HHS and the Treasury Department evaluate state's applications, would change. Changes made to the standards for evaluating new waivers are not expected to significantly alter the net budgetary effect relative to current law.
  • A total of $30.5 billion for reinsurance programs or invisible high-risk pools in the nongroup insurance market would be appropriated. Specifically, the legislation would appropriate $10 billion per year over the 2019-2021 period to be used for reinsurance programs or invisible high-risk pools in the nongroup insurance market, plus $500 million to be used for state administrative costs, for a total of $30.5 billion. These provisions of the legislation would increase the deficit by $19.6 billion over the 2018-2027 period; the increase in the deficit is composed of a spending increase of $26.5 billion, partly offset by an increase in revenues of $7.0 billion.
  • States with waivers under section 1332 of the ACA that were approved before the legislation's enactment would be allowed to request a recalculation of the pass-through funding they would be owed. The methodology for calculating pass-through payments to include reductions in Basic Health Program (BHP) subsidies caused by the terms of a waiver would be modified. Minnesota is the only state with an approved 1332 waiver and a BHP.
  • Funds for the direct payment for cost-sharing reductions (CSRs) through 2021, would be appropriated. Payments for CSRs for the fourth quarter of calendar year 2017, would be made available for certain insurers for plan year 2018, and for all of plan years 2019 through 2021. Because such payments are in CBO's baseline projections (totaling $25 billion for 2019 through 2021 and $76 billion over the 2018-2027 period), CBO and JCT estimate that the appropriation would not affect direct spending or revenues, relative to that baseline.
  • Beginning in 2019, any enrollee in the nongroup market would be allowed to purchase a catastrophic plan (referred to as copper plans. Under current law, only certain people, most of whom are under the age of 30, may enroll in a catastrophic plan in the nongroup insurance market. Under current law, subsidies would not be available for that coverage. Catastrophic plans would be included as part of the single risk pool for pricing premiums in the nongroup market, alongside most other plans.
  • Some existing funding for operations in the health insurance marketplaces would be required to be used specifically for outreach and enrollment activities in 2019 and 2020, however, the legislation would not designate specific purposes for existing funding or appropriate additional funds. HHS would be required to spend $105.8 million of those existing user fees for outreach and enrollment activities related to the federally-facilitated marketplace for each of plan years 2019 and 2020. That amount is larger than the amount the Administration has previously announced it plans to spend on those activities for the 2018 plan year.

Intergovernmental and private sector mandates as defined in the Unfunded Mandates Reform Act (UMRA) (P.L. 104-4) would be imposed under the provisions of the BHCSA. The bill would require (1) insurers to consider catastrophic plans as part of the single risk pool and (2) require issuers of short-term, limited duration insurance to notify consumers that such insurance differs from coverage and benefits under qualified health plans. CBO estimates that any incremental administrative costs of those mandates would be small and fall below the annual threshold established in UMRA for private-sector.

Letter to Senate. Lamar Alexander (R- Tenn.), Chairman of the Senate Committee on Health, Education, Labor and Pensions request the CBO to provide an alternative estimate of section 602(b) of the BHCA, which would appropriate sums for CSR payments authorized by section 1402 of the ACA. The alternative estimate was to reflect that insurers are not being separately reimbursed though an appropriation for the costs of CSR. The CBO and JCT estimated that enactment of section 602(b) would result in a net reduction in the deficit of $29 billion over the 2018-2027 period. The net deficit reduction would stem mainly from smaller federal subsidies for health insurance purchased through the marketplaces by people with incomes between 200 percent and 400 percent of the FPL. CBO Report, March 19, 2018; CBO Letter, March 19, 2018

CSR legislation could lower premiums by 40 percent

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

Individual insurance premiums would be 40 percent lower and an additional 3.2 million people would have insurance coverage, across all metals, under two recently proposed bills, Bipartisan Health Care Stabilization Act of 2018 (S. 1771) and the Lower Premiums Through Reinsurance Act, according to an analysis by Oscar Wyman Health.

The legislation, among other things, would fund cost-sharing reductions, as established by sec. 1402 of the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148), through plan year 2021. In addition, it provides $10 billion annually for invisible risk pool/reinsurance funding in 2019, 2020, and 2021, with a federal fallback option available to states in 2019. The analysis assumed that states would use federal pass-through savings under sec. 1332 of the ACA to supplement and leverage the $10 billion authorized by the legislation.

The analysis noted, however, that states that have not begun working on a waiver will "be challenged" to get one filed and approved under in time to affect 2019 premiums. States unable to get a waiver in place for 2019 would still benefit from the federal fallback program. Premiums in states that are not able to obtain a waiver and, therefore, take advantage of pass-through savings for 2019 would decline by more than 20 percent across all metal levels.

On March 6, 2018, the American Hospital Association and other groups urged Congress to include bipartisan legislation to reduce premiums, improve affordability, and improve the individual health insurance market in the omnibus appropriations bill that it must act on by March 23.

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Life Sciences
FDA seeks information on setting a maximum nicotine level in cigarettes

By Harold Bishop, J.D.

An advance notice of proposed rulemaking (ANPRM) to obtain information for consideration in the development of a tobacco product standard setting the maximum nicotine level for cigarettes has been published by the FDA. The FDA is considering this action to reduce the level of nicotine in cigarettes so they are minimally addictive or non-addictive, using the best available science to determine a level that is appropriate for the protection of the public health.

The FDA's goal is nicotine levels in cigarettes that do not spur or sustain addiction. It believes this could give addicted users the choice and ability to quit more easily, and it could help to prevent experimenters from initiating regular cigarette use and becoming regular smokers.

The FDA is specifically seek comments, evidence, and other information on the following topics:

  • Scope. The scope of products covered by any potential product standard, i.e., whether the standard should cover any or all of the following products: combusted cigarettes (which FDA has previously interpreted to include kreteks and bidis), cigarette tobacco, roll-your-own tobacco, some or all cigars, pipe tobacco, and water-pipe tobacco.
  • Maximum nicotine level. The FDA is particularly interested in: (1) comments about the merits of nicotine levels like 0.3, 0.4, and 0.5 milligrams nicotine per gram of tobacco filler, as well as other levels of nicotine; (2) information on additional scientific data and research which would provide information about specific groups within the general population which may have an increased sensitivity to nicotine's reinforcing effects, or who may have otherwise not been captured in the literature on very low nicotine content cigarettes; and (3) information on additional scientific data and research relevant to the empirical basis for regulatory decisions related to a potential nicotine product standard.
  • Implementation. Whether the nicotine standard should propose either a single target (where the nicotine is reduced all at once) or a stepped-down approach (where the nicotine is reduced gradually over time through a sequence of incremental levels and implementation dates) to reach the desired maximum nicotine level.
  • Analytic testing method. Whether the product standard should specify a method for manufacturers to use to detect the level of nicotine in their products.
  • Technical achievability. Whether significant nicotine reductions in cigarettes and other combusted tobacco products can be achieved principally through: (1) tobacco blending and cross-breeding plants; (2) genetic engineering; (3) chemical extraction; (4) agricultural practices (e.g., controlled growing conditions, fertilization, and harvest); or (5) more recent, novel techniques.
  • Possible countervailing effects. Whether current smokers of tobacco products subject to a nicotine tobacco product standard will: (1) turn to other combusted tobacco products to maintain their nicotine dependence, both in combination with cigarettes (i.e., dual use) or in place of cigarettes (i.e., switching); (2) alter their smoking behaviors by increasing the number of cigarettes smoked or increasing the depth of inhalation; (3) add nicotine in liquid or other form to their combusted tobacco product; and/or (4) turn to illicit trade to obtain cigarettes that do not adhere to the nicotine standard.
  • Economic impacts. The FDA is also seeking comments, data, research results, and other information regarding economic impacts of a potential nicotine tobacco product standard.

Comments on the ANPRM are due by June 14, 2018.

The FDA also plans to issue two additional ANPRMs: one to seek comment on the role that flavors – including menthol – play in initiation, use, and cessation of tobacco products, and one to solicit additional comments and data related to premium cigars. Advance Notice of Proposed Rulemaking, 83 FR 11818, March 16, 2018

Brand manufacturer could be liable for "reckless" failure to update generic labeling

By Wolters Kluwer Editorial Staff

The Massachusetts Supreme Judicial Court ruled that Merck could be liable for failing to update a warning label that also applies to generic versions of its drug Proscar®, finding that injuries could be covered by a common-law recklessness claim even if Merck did not manufacture the actual generic drug that the consumer took.

Injury and suit. The consumer had sued Merck for negligence and failure to warn consumers about the possibility that Proscar, used to treat an enlarged prostate, could cause long-term erectile dysfunction. Although the consumer took a generic version of Proscar, he argued that Merck was liable because it controlled the warning label's language under Food, Drug and Cosmetics Act (FDC Act) (21 U.S.C. §301 et seq.) regulations that require generic drugs to use the same labeling as their name-brand counterparts. The case was dismissed by a lower court, which found that Merck could not be liable because it did not manufacture the drug that allegedly caused the plaintiff's injury. The plaintiff appealed, and the Supreme Judicial Court took the case on its own motion, bypassing the Appeals Court.

Generic drugs. Generic drug consumers are generally left without recourse for alleged injuries caused by inadequate or inaccurate labels, since generic manufacturers are not responsible for the labeling and the original manufacturers aren't responsible for the manufacture of generic drugs. The U.S. Supreme Court has held that state law claims against generic drug makers for failure to warn are preempted by federal drug regulations, which leaves consumers able to bring such claims only if they ingested a brand-name version of the drug. And once generic drugs are approved, they usually make up the vast majority of the market, meaning that relatively few consumers would have the ability to sue the original manufacturer, according to the decision.

Common law recklessness. Seeking to strike a balance between protecting generic drug consumers and maintaining the FDC Act's goals of encouraging new drug development and speeding the approval of generic drugs, the court found that Merck could not be liable for negligence or failure to warn, but it could be liable for common law recklessness. A simple negligence standard would leave drug makers too vulnerable to paying additional costs for products they no longer produce, extending liability long after the brand-name manufacturer has moved on to focus on other patented products, according to the court. The recklessness standard, on the other hand, requires consumers to show both intent and a substantially greater risk than is required for ordinary negligence, the court found. The recklessness standard protects both drug consumers and manufacturers by creating liability only for the most serious injuries and the most dangerous forms of conduct, according to the decision. The plaintiff's case was remanded to the lower court, with instructions that he be allowed to amend his complaint to include claims that Merck acted recklessly in its failure to update the warning label.

The Massachusetts Supreme Judicial Court acknowledged that it was going against most other states' courts in finding that brand-name manufacturers have a duty to warn consumers of generic drugs, and said that it was the only court to apply a recklessness standard to such claims. California's Supreme Court also recently held that brand-name manufacturers could liable for the warning labels on generic drug. In that case, the California court ruled that Novartis could be liable for a generic label even after selling the rights to its brand-name version, on the grounds that it was reasonably foreseeable that the successor drug manufacturer could continue to use the same label that Novartis created. The California decision drew a dissenting opinion that called the majority decision "a more expansive, enduring liability on drug manufacturers than has been recognized elsewhere in tort law," one that could put the original manufacturer on the hook for negligent labeling in perpetuity. Rafferty v. Merck & Co, March 16, 2018

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