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CCH Health NetNews

December 2016

In This Issue

Welcome to Health News Update

On the Front Lines

CMS withdraws controversial proposed Part B drug price reduction demonstration


Failure to screen and stabilize sufficiently alleged in EMTALA case

Using information governance to ensure compliance throughout the revenue cycle


CMS not obliged to provide beneficiary eligibility data, need only assist data search

CMS upholds exclusion of resident research time from IME FTE counts


AMA Coding Guidance: October 2016 CPT® Assistant


Health insurers and hospitals fear that repeal is real

Proposed rules governing the health insurance provider fee released

Life Sciences

Drug supply chain participants should be on alert for suspect products

21st Century Cures Act becomes law

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On the Front Lines

CMS withdraws controversial proposed Part B drug price reduction demonstration

By Kayla R. Bryant, J.D.

The Medicare Part B demonstration project, intended to reduce drug expenses, has been withdrawn due to significant criticism from all sides. The project stemmed from concerns that doctors were rewarded for prescribing more expensive drugs, contributing to the phenomenon of rising drug prices. The negative response from physicians, pharmaceutical companies, members of Congress, and industry stakeholders to the Proposed rule (81 FR 12230) was swift.

Proposal. Under the project, CMS would have implemented a new model that would have provided a flat fee plus a 2.5 percent add-on for drugs, as opposed to the current 6 percent add-on to the Average Sales Price (ASP) (see Will alternative drug payment models reduce Part B expenditures?, March 9, 2016). The second phase of the demonstration would have implemented a value-based purchasing (VBP) tool. The proposal stemmed from concern about the significant increase in add-on payments when providers prescribed brand name drugs versus generic drugs.

Criticisms. The backlash following the proposal contained several different criticisms. Congress believed that the demonstration was an overreach of agency authority. Cancer providers were worried about the sizable decrease in Part B payments, which help doctors cover the costs of essential services that are either not covered or inadequately reimbursed. Some believed that patients would be directed to higher-cost treatment facilities that would actually increase Medicare costs. Many patient advocates cited safety concerns, believing that quality and availability of care would suffer under the program.

Withdrawal. HHS cited the complex issues and limited amount of time to implement the program as the reason for the withdrawal. Representative Nancy Pelosi (D-Calif) found the project’s goals "admirable," but was pleased with the decision to halt the program and hopes that bipartisan congressional efforts will address increased drug costs. Representative Fred Upton (R-Mich) also found the withdrawal to be good news, calling the program a "harmful Medicare experiment."

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Failure to screen and stabilize sufficiently alleged in EMTALA case

By Reba L. Kieke

A patient and her family sufficiently offered evidence supporting the "failure to screen" theory of liability under the Emergency Medical Treatment and Active Labor Act (EMTALA) (42 U.S.C. § 1395dd) and may proceed with their claim of an EMTALA violation against a hospital and health system, the U.S. District Court for the Northern District of California ruled, The court, however, granted the hospital’s motion to dismiss claims that it violated California’s Elder Abuse and Dependent Adult Civil Protection Act.

On May 17, 2016, the family filed a lawsuit against Santa Rosa Memorial Hospital and St. Joseph Health alleging three causes of action: (1) violation of EMTALA; (2) violation of California’s Elder Abuse and Dependent Adult Civil Protection Act; and (3) negligence. The court ruled that the family had adequately alleged the "failure to stabilize" claim in accordance with EMTALA. The complaint, however, did not provide sufficient evidence supporting the "failure to screen" theory under EMTALA and did not adequately allege how the patient was a "dependent adult" or how a caretaker or custodial relationship had been established under California law. The court dismissed those claims with leave to amend.

On October 24, 2016, the family filed a first amended complaint containing additional information regarding the hospital and health system’s alleged violation of EMTALA and California’s Elder Abuse Act. The amended complaint states that the defendants "dumped and failed to screen or stabilize" the patient, thereby violating EMTALA. The hospital and health system argued that testing was carried out. The court acknowledged that certain tests were completed but noted that the hospital failed to administer critical tests that should have been done, given that the patient was a "known diabetic with grossly abnormal blood sugar and extreme evidence of heart failure." The court determined that there was sufficient evidence to show the hospital provided the patient with a "differential screening and one that was so cursory that it was not designed to identify acute and severe symptoms." As it had previously done, the court stated that the family had adequately alleged a claim for failure to stabilize under EMTALA.

On the second cause of action, the court concluded that the family did not provide sufficient evidence establishing that the patient was a "dependent adult," in accordance with the Elder Abuse Act. Also, the family did not provide evidence establishing a caretaker or custodial relationship between the patient and the defendants. As a result, the court ruled in favor of the defendants without leave to amend.

Given that the family may proceed with their EMTALA claim, the court denied the defendants’ request to dismiss claims for punitive damages. The court also ruled that confidential information from other cases cannot be included in the amended and granted the defendants’ request to strike that information. Gutierrez v. Santa Rosa Memorial Hospital, No. 16-cv-02645-SI. December 13, 2016

Using information governance to ensure compliance throughout the revenue cycle

By Harold Bishop, J.D.

The fundamental functions of information governance (IG) in the revenue cycle of health care organizations were discussed during a recent webinar sponsored by the Health Care Compliance Association (HCCA). IG is defined by the American Health Information Management Association (AHIMA) as "an organization-wide framework for managing information through its lifecycle and for supporting the organization’s strategy, operations, regulatory, legal, risk, and environmental requirements." According to AHIMA, IG: (1) establishes policy; (2) determines accountabilities for managing information; (3) promotes objectivity through robust, repeatable processes; (4) protects information with appropriate controls; and (5) prioritizes investments.

Fundamental functions. The webinar presenter, Ann Meehan, RHIA, Director of Information Governance at AHIMA IGAdvisors™, described IG in health care as an emerging super-discipline, and listed the following fundamental functions of health care IG and described their responsibilities and challenges in the revenue cycle:

  • Front end processes: scheduling/pre-registration/pre-certification/registration’
  • health information management,
  • coding and abstracting,
  • billing,
  • denials management, and
  • regulatory audit activities.

Front end processes. To achieve front end process functions, Meehan believes the organization must have: (1) an IG structure that provides centralized oversight for all things data and information related; (2) an enterprise information management (EIM) system that addresses standardized policies and procedures; and (3) data governance to ensure defined data sets are consistent across the organization.

Health information management (HIM). Achieving HIM functions, according to Meehan, requires: (1) an EIM system that includes policies and procedures to ensure adherence with record completion requirements, controls around "shadow" records, and lifecycle protocols that include record retention and destruction; (2) legal and regulatory to address centralized oversight of release of information to ensure that releases occur per state requirements and are coordinated across the entire organization; (3) privacy and security methods that include collaborative, organization-wide efforts to protect patients from breach of their protect health information (PHI); and (4) processes to ensure that legal requests are handled appropriately.

Coding and abstracting. Meehan explained that achieving the coding and abstraction functions requires: (1) an EIM that provides the framework to ensure that a complete and accurate medical record is available as quickly as possible; (2) data governance that ensures consistent capture of physician information; and (3) legal and regulatory to addresses the organization-wide infrastructure to ensure that an organization’s regulatory requirements are met consistently.

Billing. According to Meehan, an effective billing function requires: (1) data governance that ensures consistency in data definitions and data work flows; (2) an EIM system that coordinates the capture and reporting of information across all business units to ensure accuracy of claims and appropriate reimbursement; (3) information technology (IT) governance that provides technology to facilitate charge capture, payer requirements, clean claims, and combined claims; (4) staff education and accountability; and (5) patient engagement and understanding of claims.

Denials management. Meehan emphasized that the denials management function should have: (1) data governance that ensures consistency in data definitions and data work flows; (2) an EIM that coordinates the capture and reporting of information across all business units to ensure accuracy and minimize denials and rework; (3) IT governance that provides technology to facilitate charge capture and payer requirements; (4) analytics that supports denials and trends; and (5) staff education and accountability.

Regulatory audit activity. The regulatory audit activities, according to Meehan, should include: (1) policies and procedures from legal and regulatory; (2) an EIM that coordinates the capture of information throughout the care of the patient and onto billing; (3) IT governance that provides the technology to obtain documents and patient health records required in support of audit request; (4) analytics that support the ability to trend audit activity to allow changes, corrections, and long term fixes to processes; and (5) staff education and accountability.

Setting up IG in the organization. Meehan believes that the essential structural components of IG must include executive, strategic, tactical, and operational functions. According to Meehan, an "IG Council" or "IG Steering Committee" could be set up, which would be comprised of leaders from key functional areas like HIM, IT, strategy, legal, compliance, quality, operations, clinical services and finance.

Meehan suggested that the functions of the council or steering committee include establishment of the IG charter, providing planning guidance, creating/approving policies and procedures, establishing and advising task forces/work groups, making decisions based on recommendations from those task forces/work groups, seeking approvals and/or funding from the executive component as appropriate, tracking accomplishments, and measuring and reporting progress.

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CMS not obliged to provide beneficiary eligibility data, need only assist data search

By Harold Bishop, J.D.

The CMS Administrator reversed a decision of the Provider Reimbursement Review Board (PRRB), which concluded that a Medicare contractor improperly excluded days designated as "inactive," unpaid Medicaid patient days from the Medicaid fraction of the Medicare disproportionate share hospital (DSH) calculation for five acute care hospitals. The Administrator found that CMS did not have an affirmative obligation to provide the beneficiary eligibility data for the hospitals, rather CMS only had an obligation to ensure there were no legal impediments to the hospitals' access to the state data and to assist in the data search.

Appeal of DSH payment. Five Denver area acute care hospitals appealed the amount of their Medicare DSH payment. The hospitals alleged that the Medicare contractor failed to include in the Medicare DSH calculation those patients who were eligible for the Medicaid program in Colorado but were denoted as inactive under the Colorado Benefits Management System (CBMS) for the relevant dates of service. As a result of the failure to include those patients, the hospitals alleged that they experienced a shortfall in their Medicare DSH payments of over $40 million. Due to inaccuracies in CBMS-generated data, the hospitals were unable to match hospital records with records of Medicaid-eligible individuals, for purposes of determining the appropriate number of Medicaid eligible days.

When calculating the fraction, the Medicare contractor determined that some patients, designated as inactive through the CBMS, were the recipients of services paid by Medicaid on the dates in question. The Medicare contractor counted those inactive days; however, other individuals were identified as inactive with no record of Medicaid payments made on their behalf. The Medicare contractor refused to count those inactive patient days. The hospitals asserted that even the unpaid, inactive patient days of Medicaid eligible individuals should be included in the DSH calculation.

PRRB decision. The PRRB agreed with the hospitals and concluded that Medicare contractors are compelled to include both paid and unpaid inactive days in their DSH adjustment calculation. The PRRB acknowledged CMS’ argument that the hospitals were obligated to verify Medicaid eligibility with the relevant state for purposes of the DSH Medicaid fraction. The PRRB noted, however, as a condition precedent to that requirement, CMS must make available the necessary underlying Medicaid data needed for the hospital to do that verification. Because CMS did not satisfy the condition precedent, the hospitals were under no regulatory burden of proof and were entitled to the additional Medicaid eligible days (see DSH calculations include paid and unpaid ‘inactive’ Medicaid patient days, October 14, 2016).

Administrator’s review. The Medicare contractor and CMS requested that the PRRB's decision be reversed. The issue before the CMS Administrator was whether patient days that the providers have identified as "inactive" in the Colorado State Medicaid program should be included in the Medicaid proxy that is used in the calculation of the Medicare payment for the DSHs.

The hospitals argued that CMS and its contractor had an affirmative duty under section 951 of the Medicare Prescription Drug, Improvement, Modernization Act of 2003 (MMA) (P.L. 108-173) (titled: Furnishing hospitals with information to compute DSH formula) to provide the Medicaid eligibility status of the hospitals' patients and, when the data was not forthcoming, the burden is shifted to CMS to rebut the hospitals' claim for payment based upon the identified inactive days.

The Administrator decided that section 951 did not create an affirmative obligation for CMS to provide the beneficiary eligibility data for the hospitals, but rather that CMS correctly interpreted the provision as requiring it to make sure there were no legal impediments to the hospitals' access to the state data and provide any personal identifiable information that might assist in the data search. CMS’ interpretation was a reasonable interpretation of section 951, according to the Administrator, because Medicaid is a voluntary joint program and not a sole federal program, the data is in the states' respective custody, there are 50 state plans and data bases, and hospitals are in the best situation to access the data from the state.

The Administrator also decided that the plain language of section 951 did not override the longstanding Medicare principle set forth in the statute and, more specifically in the DSH regulation, that providers must submit the necessary documentation required by the Secretary for payment to be made.

Further, even if the burden was placed on CMS, the Administrator found that the burden was met because the record indicates that CMS efforts were made pursuant to the state plan requirements controlling Medicaid data systems and the hospitals had access to the state data via several different means. The Administrator concluded that to use section 951 to shift the burden to CMS to provide the Medicaid eligibility data and require payment to the hospitals in situations for which CMS cannot provide the state's eligibility data, was incorrect. (In the Case of: HCA DSH-Colorado State Database Group Appeals, CMS Administrator Decision, Review of PRRB Decision No. 2016-D17, September 12, 2016

CMS upholds exclusion of resident research time from IME FTE counts

By By Robert B. Barnett Jr., J.D.

The time medical residents spend in research activities unrelated to patient care should not be included by a teaching hospital in determining the full-time equivalent (FTE) resident counts for purposes of computing its indirect medical education (IME) payment. In upholding a decision by the Provider Reimbursement Review Board (PRRB) to exclude such time from IME FTE resident counts, the CMS Administrator reiterated what he characterized as long-standing Medicare policy to exclude research time unrelated to patient care from the computation of otherwise-allowable indirect medical education costs.

Case history. A Medicare contractor, Noridian Administrative Services, disallowed the portion of Medicare IME reimbursement claims for fiscal years 1997-2001 by Stanford University Hospital and UC Davis Medical Center that applied to time that residents spent in research activities. The two hospitals appealed that decision to the PRRB, which upheld the contractor’s decision (see Medicare will not reimburse residents’ pure research activities at teaching hospitals, October 14, 2016). The two hospitals then appealed the PRRB decision to the CMS Administrator.

Regulatory history. Medicare recognizes that teaching hospitals experience higher operating costs associated with their educational activities. When the inpatient prospective payment system for reimbursement was introduced in 1983, Congress realized that teaching hospitals would likely incur higher overhead, for example, through a higher volume of laboratory tests, greater recordkeeping requirements, or other measures needed to educate residents. An additional payment for such indirect costs of medical education was authorized. The IME payment is computed in part by determining the ratio of the FTE residents to the number of hospital beds.

According to the Administrator, however, throughout the long and somewhat complex development of these rules, at no time was the IME payment meant to include activities outside of direct patient care activities. As a result, long-standing Medicare policy has been to exclude resident time not involved in patient care from the FTE count. The regulations, the Provider Reimbursement Manual, and other issuances have supported this conclusion. Section 5505(b) of the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148), passed in 2010, further expressly excluded such activities from the FTE count. Some confusion arose, however, when one court decision and a few commentators incorrectly interpreted the ACA to allow non-patient care activities to include research time. In this opinion, the Administrator has restated that Medicare has consistently excluded such costs from the FTE count and that the ACA did not alter that interpretation.

In excluding research activities not involved in patient care, a distinction is drawn between research activities and non-patient care activities. Non-patient care activities include conferences and seminars and may be included in the FTE count. The distinction is made because conferences and seminars may occur during periods when the resident is assigned to a rotation requiring patient care and may involve presentations or discussions related to the treatment of current patients, whereas the research activities are typically blocks of time separately designated for research. The distinguishing characteristic is the existence of ongoing patient care. For purposes of determining the IME FTE resident count, however, purely research activities must be excluded. The PRRB, therefore, appropriately upheld the contractor’s decision to exclude such costs from the IME payment. In the case of: Toyon 1997-2001 Intern and Resident Research FTE Group v. Noridian Healthcare Solutions, CMS Administrator Decision, Review of PRRB Decision No. 2016-D26, November 14, 2016

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AMA Coding Guidance: October 2016 CPT® Assistant

By Jeff Erickson

Wound Debridement vs Active Wound Care Management

There has been some concern that wound debridement codes and wound care management codes are being misused. This article clarifies which set of CPT® codes should be used when reporting procedures related to various types of wound treatment and provides guidelines for choosing the appropriate codes to report based on the procedure or service performed and not on the health professional’s choice of instruments or devices. Specifically, Debridement Codes 11042-11047 and Active Wound Care Management Codes 97597-97602 are compared and discussed. Clinical examples and descriptions of procedures for each code are included.

Vaccines and Toxoids 2017 Changes

This article discusses several changes that have been made in the Vaccines, Toxoids subsection of the CPT® 2017 code set. Code 90674 was added to report cell culture–derived influenza quadrivalent vaccines, and code 90661 was revised to include a “trivalent” designation. In addition, eight codes (90655, 90656, 90657, 90658, 90685, 90686, 90687, 90688) were revised to include dosage amounts in lieu of age indications, and the Advisory Committee on Immunization Practices (ACIP) abbreviation included in the meningococcal conjugate vaccine code (90734) was updated.

The FDA approval pending symbol was removed from codes 90625 (oral cholera vaccine) and 90653 (adjuvanted influenza vaccine). In recognition of the public health interest in vaccine products, the CPT® Editorial Panel also publishes in the CPT® codebook as well as to the CPT® website new vaccine product codes prior to approval by the FDA. These codes are indicated with a lightning bolt symbol and tracked by the AMA to monitor their FDA approval status. Once the vaccine product is approved by the FDA, the symbol is removed. CPT® code users should refer to the AMA CPT® website for the most up-to-date information on codes that are pending FDA approval. The article also provides a number of Coding Tips.

Reporting Endotracheal Intubation with Critical Care Services

It is not uncommon for a patient to present to the emergency department with a serious illness or injury requiring critical care services or to receive critical care services in another clinical setting, such as an intensive care unit. When the criteria for critical care services are met, and the nature of the presenting problem and the minimum time thresholds are satisfied, code 99291, Critical care, evaluation and management of the critically ill or injured patient; first 30-74 minutes, would be reported. If the patient requires endotracheal intubation for airway protection or to provide invasive mechanical ventilatory support by the same provider, code 31500, Intubation, endotracheal, emergency procedure, may be reported in addition to critical care code 99291. Both services should be supported by medical record documentation. Because code 99291 for critical care is a time-based code, the time spent in providing any separately reported procedures, such as endotracheal intubation, may not be included in the critical care time reported. If the endotracheal intubation is performed by a different physician than the one who provides the critical care service, each physician should report the appropriate code for their services. For example, code 99291 would be reported by the physician providing the critical care service, given the time requirements are met for the critical care service, or the appropriate E/M code (e.g., 99233 or 99232) is reported, if the time threshold for critical care is not met. Code 31500 would be reported by the provider who performed the endotracheal intubation.

If the critical care time, not including the time involved in the emergency intubation, does not reach the minimum threshold of 30 minutes, a provider cannot report the critical care service. In this instance, the provider may report code 31500 for the endotracheal intubation and a different E/M code to reflect the clinical services provided to the patient other than the clinical assessment and activities involved in the endotracheal intubation. However, in this situation, modifier 25, Significant, separately identifiable evaluation and management service by the same physician or other qualified healthcare professional on the same day of the procedure or other service, should be appended to the code describing the E/M service.

Therapeutic Injections—Application of On-Body Injector (96377)

New code 96377 has been added to the CPT® 2017 code set to report the application of an on-body injector that includes the insertion of a cannula for a timed subcutaneous injection. This article discusses the intent and appropriate reporting of this service, and contrasts its use with code 96372, Therapeutic, prophylactic, or diagnostic injection (specify substance or drug); subcutaneous or intramuscular. A clinical example is included.

Frequently Asked Questions

An article by the CPT® Editorial Panel answers questions posed to the panel regarding the subjects of Surgery: Digestive System, Musculoskeletal System, and Nervous System. The responses answer multiple questions including:

  • Is the removal of an intervertebral PEEK cage in the lumbar spine separately reported?
  • After performing a segmentectomy in segment VII of the liver, the surgeon also performed a wedge resection of the gallbladder fossa. What is the appropriate code to report the wedge resection?
  • What is the appropriate CPT code to report for a lesser occipital nerve block?

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 “October 2016.”

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Health insurers and hospitals fear that repeal is real

By Bryant Storm, J.D.

Health insurers are taking steps to prepare for a potential repeal of the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148). With stakeholders in agreement that the health reform law cannot be repealed without, at least, partial replacement, health insurers and hospitals are calling for measures that will mitigate the coverage and funding loss implied by a repeal of the ACA.

Repeal. Republican lawmakers are proposing partial repeal of the ACA through the budget reconciliation process. Such a process would limit repeal efforts to those aspects of the law with federal budget implications—Medicaid expansion, marketplace assistance (premium tax credits and cost-sharing reductions), and the individual and employer mandates. The leading proposal—Restoring American’s Healthcare Freedom Reconciliation Act of 2015 (H.R. 3762)—previously passed Congress but was vetoed by President Obama (see Senate’s ACA repeal would reduce deficits by $474B, December 16, 2015).

Impacts. The anticipated consequences of a partial repeal are dramatic. The number of uninsured people is expected to rise from 28.9 million to 58.7 million in 2019. That increase of 29.8 million is composed of 22.5 million who become uninsured as a result of the absence of premium tax credits, Medicaid expansion, and the individual mandate. The remaining 7.3 million of the newly uninsured are projected to lose insurance due to the near collapse of the non-group insurance market. Spending would be reduced on the federal side by $109 billion in 2019 and $1.3 trillion between 2019 and 2028 due to the elimination of Medicaid expansion, premium tax credits, and cost-sharing assistance. State spending also would fall by $76 billion between 2019 and 2028.

Insurers. The response from stakeholders has been loud. The health insurance industry, through its lobbyist, America’s Health Insurance Plans (AHIP), published a paper condemning the concept of immediate repeal of federal support for things like cost-sharing reductions and Medicaid expansion. AHIP called for a "stable transition with smart solutions." One such solution recommended by the insurance lobby is to replace the individual mandate with different incentives: late enrollment penalties and waiting periods. AHIP also said that lawmakers should retain cost-sharing subsidies and fund reinsurance to help insurers defray high costs.

AHA. The American Hospital Association (AHA) has also expressed concerns regarding the impact of repeal. The AHA believes any repeal bill that does not also replace coverage should reverse hospital payment reductions in order to ensure the financial stability of its members. Specifically, the AHA has asked lawmakers to restore the Medicare hospital inflation update and eliminate cuts to the Medicare and Medicaid Disproportionate Share Hospital (DSH) payments. The AHA warns that H.R. 3762 repeals coverage while leaving in place cuts that were intended to fund the very coverage the bill would repeal. Additionally, the AHA estimates that H.R. 3762, without any additional ACA replacement, would have a net negative impact on hospitals of $165.8 billion.

Proposed rules governing the health insurance provider fee released

By Wolters Kluwer Editorial Staff

The IRS has issued proposed regulations regarding Health Insurance Provider Fee under Section 9010 of the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148). One set would require electronic filing of Form 8963, Report of Health Insurance Provider Information. These amendments are proposed to apply to any covered entity reporting more than $25 million in net premiums written on any Form 8963 filed after December 31, 2017. The other set of proposed regulations would modify the current definition of "net premiums written," and are proposed to apply with respect to any fee that is due on or after September 30, 2018.

Electronic filing. Under the Proposed rule, a covered entity (including a controlled group) reporting more than $25 million in net premiums written on a Form 8963 or corrected Form 8963 must electronically file these forms after December 31, 2017. Forms 8963 reporting $25 million or less in net premiums written are not required to be electronically filed. If a Form 8963 or corrected Form 8963 is required to be filed electronically, any subsequently filed Form 8963 filed for the same fee year must also be filed electronically, even if such subsequently filed Form 8963 reports $25 million or less in net premiums written. Failure to electronically file will be treated as a failure to file.

Net premiums written. The Proposed rule would modify the current definition of net premiums written to account for premium adjustments related to retrospectively rated contracts, computed on an accrual basis. These amounts are received from and paid to policyholders annually based on experience. Retrospectively rated contract receipts and payments do not include changes to funds or accounts that remain under the control of the covered entity, such as changes to premium stabilization reserves.

The Proposed rule clarifies that net premiums written include risk adjustment payments received and are reduced for risk adjustment charges paid. If a covered entity did not include risk adjustment payments received as direct premiums written on its Supplemental Health Care Exhibit (SHCE) or did not file an SHCE, these amounts are still part of net premiums written and must be reported as such on Form 8963. For this purpose, risk adjustment payments received and charges paid are computed on an accrual basis.

Comment sought. The Treasury Department and the IRS request comments on all aspects of the proposed rules. A public hearing will be scheduled if requested in writing by any person that timely submits written comments. If a public hearing is scheduled, notice of the date, time and place for the public hearing will be published in the Federal Register. Submissions should be sent to: CC:PA:LPD:PR (REG-123829-16 or REG-134438-15), room 5205, Internal Revenue Service, PO Box 7604, Ben Franklin Station, Washington, D.C. 20044. Submissions also may be hand delivered Monday through Friday between the hours of 8:00 a.m. and 4:00 p.m. to CC:PA:LPD:PR (REG-123829-16), Courier's Desk, Internal Revenue Service, 1111 Constitution Avenue, NW., Washington, D.C., or sent electronically via the Federal eRulemaking Portal at (indicate IRS REG-123829-16 or REG-134438-15), room 5203, Internal Revenue Service, PO Box 7604, Ben Franklin Station, Washington, D.C. 20044. Proposed rule, 81 FR 89020, December 9, 2016; Proposed rule, 81 FR 89017, December 9, 2016

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Life Sciences

Drug supply chain participants should be on alert for suspect products

By Kayla R. Bryant, J.D.

Scenarios that could increase the risk of suspect products entering the pharmaceutical distribution supply chain include purchasing from a new source, receiving unsolicited sales offers, and finding prices that are “too good to be true.” The FDA’s new guidance for trading partners provides information intended to assist in identifying suspect products, and establishes binding guidance on the process of terminating notifications of illegitimate product.

Suspect products. Section 582 of the federal Food, Drug and Cosmetics Act (FDC Act) (21 U.S.C. §301 et seq.), added under the Drug Supply Chain Security Act (P.L. 113-54) requires trading partners (manufacturers, repackagers, wholesale distributors, and dispensers) to notify the FDA and some immediate trading partners if that partner determines that a product in its possession or control is illegitimate. Manufacturers are also required to notify the FDA and partners when it is aware of a high risk of illegitimacy.

Terminating notifications. Although guidance is generally not binding, section IV. B. of this guidance has binding effect to the extent that it sets forth the process for terminating notifications. If a trading partner believes that a notification made to the FDA about a product that is illegitimate or has a high risk of illegitimacy is no longer necessary, that partner must follow instructions on the FDA’s website for submitting Form FDA 3911. This form must contain information about the entity initiating the termination request, the product in question, the notification that was issued about the product, and an explanation of why the notification is no longer necessary.

Suspect scenarios. Trading partners should be aware of scenarios that present a risk of a suspect product entering the supply chain. Engaging in transactions with new sources, sources that have engaged in questionable practices in the past, and sources found online while searching for a better price are considered risky. Products that are generally in high demand or sold at a high price in the U.S., that have a history of being counterfeited, has been the subject of a cargo theft alert, or contained in suspicious-looking packaging may be prone to illegitimacy. Notice, 81 FR 89112, December 9, 2016

21st Century Cures Act becomes law

By Bryant Storm, J.D. and Sarah E. Baumann, J.D.

President Obama signed the 21st Century Cures Act, a bill with overwhelming bipartisan support, into law on December 13, 2016. The law, which is intended to invest in medical research and increase the speed with which new drugs are approved, addresses FDA reforms, mental health and substance abuse, opioid addiction, and cancer research. The President applauded Congress’ approval of the bill, commenting, “I think it indicates the power of this issue and how deeply it touches every family across America.”

General provisions. The Cures Act intends to make good on the promise of its name through FDA reforms, new administrative positions related to mental health and substance abuse, and state funding to combat opioid addiction (see 21st Century Cures Act clears House, now set for Senate vote, December 1, 2016).

FDA. The legislation will expedite FDA approval of new drugs through the infusion of $500 million in funds to hire more FDA staff to review drug applications. The FDA reform will include: expedited review for breakthrough devices, increased patient involvement in the drug approval process, a streamlined review process for combination products that are both a drug and device, and freedom from red tape for software (see Faster, please: expedited drug approval pathways increasingly popular, July 2, 2015).

Other provisions. The Cures Act provides additional investments regarding substance abuse and innovation: $1 billion towards the opioid crisis; $1.8 billion in new resources to accelerate discoveries in cancer research; and $3 billion to build upon the BRAIN and Precision Medicine initiatives which are focused on diseases like Alzheimer’s. The Cures Act also includes the development of the Mental Health and Substance Use Disorder Parity Task Force.

Opposition. Although the bill passed the House and Senate with bipartisan support, some senators opposed the health care package. Sens. Elizabeth Warren (D-Mass) and Bernie Sanders (I-Vt), who were among the five senators who voted “Nay,” expressed opposition the Cures Act on the grounds that it includes too many concessions to the pharmaceutical industry and does not guarantee enough in the way of substance abuse and medical research funding.

Support. Senate Health Committee Chairman Lamar Alexander (R-Tenn) called H.R. 34 “the most important bill of the year.” President Obama noted, “like all good legislation, [the bill] reflects compromise” and expressed his support for the bill, saying, “we should seize every chance we have to find cures as soon as possible.”

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