EpiPen® misclassification cost $1.27B over 10 years, says OIG

If the EpiPen® had been classified as brand name instead of generic for purposes of the Medicaid Drug Rebate Program, CMS would have saved $1.27 billion from 2006 to 2016, the HHS Office of Inspector General (OIG) found. This estimate is far greater than the $465 million settlement that the federal government and EpiPen’s manufacturer, Mylan Inc., entered into in October 2016 concerning the classification of the drug under the Program (see Mylan settles EpiPen Medicaid rebate dispute for $465M, Health Law Daily, October 11, 2016).

“The fact that the EpiPen overpayment is so much more than anyone publicly discussed should worry every taxpayer,” said Sen. Charles Grassley (R-Iowa). Grassley reported that CMS recently provided records showing that Mylan was made aware of the misclassification years ago but failed to act (see Federal EpiPen® spending up 463 percent, Mylan misclassified drug as generic, Health Law Daily, October 6, 2016). At the time Sen. Elizabeth Warren (D-Mass) opposed the settlement, calling it “shamefully weak” (see Warren: EpiPen® Medicaid rebate settlement shows ‘crime does pay,’ Health Law Daily, October 26, 2016).

Manufacturers generally owe a higher rebate amount for brand-name drugs than generic under the Medicaid Drug Rebate Program. The basic rebate amount for a generic drug is based on a percentage (currently 13 percent) of its average manufacturer price (AMP) (see 42 C.F.R. Sec. 447.509). The basic rebate amount for a brand-name drug is based on the greater of (1) a fixed percentage (currently 23.1 percent) of the drug’s AMP; or (2) the different between the drug’s AMP and best price. In addition to the rebate amount, manufacturers of brand-name drugs (and, beginning in 2017, manufacturers of generic drugs) pay an inflation-related rebate amount if a drug’s price has increased more than the rate of inflation.

The EpiPen controversy led Grassley to request that the OIG review the Medicaid Drug Rebate Program (see HHS Inspector General to investigate Medicaid Drug Rebate Program, Health Law Daily, December 12, 2016).

ACA changes contributed to slow in health care expenditures, study finds

Despite conventional wisdom that the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148) has done little to address high growth in health care costs, national health expenditures have grown at historically low rates in recent years, according to a brief by the Urban Institute and Robert Wood Johnson Foundation. The slower growth is related in part to the recession and slow economic recovery, but changes associated with the ACA also seem to have contributed. Analysts predict that these factors will likely cause the slower growth rates to persist into the future.

In February 2017 CMS estimated that national health expenditures grew 4.3 percent annually from 2010 to 2015, lower than its original forecast of 6.5 percent (see CMS actuary releases 2016-2025 health care expenditure projections, Health Law Daily, February 16, 2017). Current estimates of growth in each component of spending for 2010 to 2015 are lower than the original forecast—from 5.8 percent to 4.5 percent for Medicare, from 9.9 percent to 6.5 percent for Medicaid, and from 6.6 percent to 4.4 percent for private insurance.

The report attributed the slower growth to the 2007 to 2009 economic recession and slow recovery, unexpectedly low inflation, increased employer offerings of high-deductible insurance plans, cost-containment efforts within state Medicaid programs, and Medicare policies unrelated to the ACA. The ACA probably also contributed to low spending growth—for example, Medicare payment reductions to hospitals and other providers, the reduction in Medicare Advantage payments, and the managed competition structure of the marketplaces, which were reflected in the 2010 forecast.

Other ACA-related factors not in the original forecast that might have helped slow spending growth include adjustments to ACA Medicare payments, which reduced the number of Medicare hospital days, outpatient visits, skilled nursing facility days, and advanced imaging procedures between 2010 and 2014. Lower Medicare payment rates might also have had spillover effects on other payers. In addition, Medicare policies such as financial penalties for hospital readmissions could have changed provider practice patterns for patients of other payers.

‘Fatigued’ providers must concentrate on complying with two-midnight rule

Some providers may be experience two-midnight rule “compliance fatigue” due to the changing rules and current lack of traditional enforcement activity, said presenters at the Health Care Compliance Association webinar, “Two Midnight Rule: Where Are We Now?” The two-midnight rule has been a “moving target” and its evolution has been challenging for providers, with CMS having issued more than 40 items of sub-regulatory guidance over the past 3.5 years. Presenters Lauren Gennett and Isabella Wood of King & Spaulding LLP said, however, that it is important for compliance personnel to emphasize the importance of continued compliance.

Two-midnight rule. The two-midnight rule is codified at 42 C.F.R. Sec. 412.3(d), which provides that an inpatient admission is considered reasonable and necessary under Part A if the admitting physician ordered the inpatient admission based on the expectation that the patient would require at least two midnights of medically necessary hospital services.

If an unforeseen circumstance, such as a beneficiary’s death or transfer, results in a shorter stay than the physician’s expectation of at least two midnights, the patient may be considered to be appropriately treated on an inpatient basis. An inpatient admission for a surgical procedure specified by Medicare as “inpatient only” under 42 C.F.R. Sec. 419.22(n) is also generally appropriate for payment under Medicare Part A, regardless of the expected duration of care.

Rare and unusual circumstances exception. There may be “rare and unusual circumstances” in which an inpatient admission for a service not on the inpatient only list may be reasonable and necessary in the absence of an expectation of a two midnight stay. CMS expanded this exception effective January 1, 2016 (see OPPS payment update a net cut for many, Health Law Daily, November 13, 2015). The exception is determined on a case-by-case basis by the physician responsible for the care of the beneficiary, subject to CMS medical review. Relevant factors include: (1) the severity of the signs and symptoms exhibited by the patient; (2) the medical predictability of something adverse happening to the patient; and (3) the need for diagnostic studies that appropriately are outpatient services.

Wood said that CMS has not provided examples of services that might qualify for the “rare and unusual circumstances” exception. She noted that the exception is challenging for providers, who do not know how rare and unusual the circumstances must be to qualify for the exception. There is, she said, “a lot of wiggle room and uncertainty” for providers.

Inpatient admission orders. Before the two-midnight rule, there was not an express requirement for an inpatient admission order, but now 42 C.F.R. Sec. 412.3(a) requires that the inpatient admission order be in the medical record for the hospital to be paid for inpatient services under Part A. The physician is required to authenticate the order before discharge, which can be difficult for short stays. Gennett said that this requirement is “low hanging fruit for contractor denials.” There is, however, an exception for missing or defective orders that CMS originally included in January 2014 guidance and recently updated in the Medicare Benefit Policy Manual, Pub. 100-02, Ch. 1 (see Change Request 9979, March 10, 2017).

Enforcement. From October 2013 through September 2015 Medicare administrative contractors (MACs) conducted limited “probe & educate” reviews, and quality improvement organizations (QIOs) began conducting reviews in October 2015. QIO review has had its challenges, however, and in 2016 CMS temporarily “paused” QIO patient status reviews (see QIOs back to reviewing Two-Midnight rule claims, Health Law Daily, September 13, 2016). In April 2017 the QIO record selection process changed; QIOs now sample the top 175 providers with a high or increasing number of short stay claims per area with a request for 25 cases, and all other providers previously identified as having “major concerns” in the prior round of review will have a request for 10 cases.

Recovery audit contractors (RACs) may conduct provider-specific patient status reviews for providers that have been referred by the QIO as exhibiting persistent noncompliancewith Medicare payment policies, including consistently failing to adhere to the two midnight rule. The presenters noted that providers should be “extra cautious” in light of the potential for RAC referrals.

The two-midnight rule is also on the HHS Office of Inspector General’s (OIG) radar. In December 2016, the OIG issued a report based on a claims review for fiscal years 2013 and 2014 concluding that hospitals are billing for many inpatient stays that were potentially inappropriate (see Two-midnight Medicare policy succeeding but still lacks full cooperation, Health Law Daily, December 19, 2016). The OIG also stated in its FY 2017 work plan that it intends to review hospitals’ use of inpatient and outpatient stays under the two midnight rule.

Webinar provides multiple perspectives on FCA cases

To avoid federal False Claims Act (FCA) (31 U.S.C. §3729 et seq.) liability, providers should implement an effective compliance program, stay ahead of the government’s investigation of possible FCA violations, and fix problems first. In a Health Care Compliance Association (HCCA) webinar entitled, “False Claims Act Cases—Perspectives from Both Sides of the Aisle,” Rachel V. Rose, principal at Rachel V. Rose—Attorney at Law, PLLC, and Sean McKenna, shareholder at Greenberg Traurig LLP, provided an overview of the process for filing federal FCA complaints and how to respond to investigations and lawsuits under the FCA.

Complaints

Qui tam relators file their complaints under seal, on behalf of the government. The Department of Justice (DOJ) has 60 days to investigate and decide whether to intervene, which happens only about 10 percent of the time. Even then, the government will prosecute only the strongest aspects of the case. The presenters warned that relators should use “an abundance of caution” when discussing an FCA case or the underlying allegations with anyone other than the whistleblower’s attorney or the government agents assigned to the case, as “breaking the seal” can result in dismissal or sanctions.

False claims

The type of false claim that most frequently leads to FCA liability is a claim for services not provided. Other categories of false claims include legally false claims (express), legally false claims by implied certification, and reverse false claims. In United Health Services, Inc. v. United States ex rel. Escobar, (2016), the U.S. Supreme Court upheld the implied certification theory and relied on whether the claim was material to payment, what McKenna called a “groundbreaking approach” (see Implied certification liability confirmed, limited to material compliance violations, Health Law Daily, June 16, 2016).

Since November 2, 2015, the range of penalties for violating the FCA increased from $5,500-$11,000 to $10,781-$21,562, plus treble damages and the relator’s attorney fees. FCA violations can also lead to exclusion, “the death penalty for health care providers.” Exclusion applies only to conduct from the past 10 years (42 C.F.R. Sec. 1001.901(c); see HHS OIG’s exclusion authority loosens, allows more discretion, Health Law Daily, January 12, 2017).

In parallel proceedings, simultaneous civil/criminal/administrative investigation of the same defendants occurs. It can be federal and state/local or multi-district. Not every case is appropriate for parallel proceedings, however. Examples of common parallel matters include procurement and government program fraud, health care fraud, internet pharmacies, and antitrust investigations.

Yates memo

The past several years in health care fraud and abuse prosecutions have seen an increased focus on individual actors such as executives, as reflected in a September 9, 2015 memo from former acting attorney general Sally Yates, known as the “Yates Memo.” The Memo emphasized the DOJ’s commitment to combat fraud “by individuals” and recommended that: (1) to qualify for a cooperation credit, a corporation must provide facts relating to the individuals responsible for the misconduct; (2) investigations should focus on individuals from the inception of the investigation; (3) culpable individuals should not be released from liability absent extraordinary circumstances; and (4) DOJ attorneys should not resolve matters with a corporation without a clear plan to resolve related individual case.

Best practices

If an FCA investigation occurs, providers should evaluate all liability (civil, criminal, administrative, state, licensure, and private), determine if anyone needs separate counsel or has talked to the government, preserve documents, and compile the right team, including consultants, billing and coding experts, and statisticians.