Lawmakers Launch Warning to HHS Regarding Skyrocketing Generic Drug Prices

A letter urging the federal government to address “staggering increases” in the cost of generic drugs was sent to HHS Secretary Sylvia Burwell by Senator Bernie Sanders (I-Vt.) and Representative Elijah E. Cummings (D-Md.). The letter asks for the assistance of HHS in addressing significant and rapid increases in generic drug prices, which the lawmakers say are negatively affecting Medicare, Medicaid, hospitals, nursing homes, and individuals across the country. The letter warns action must be taken immediately to protect access to historically affordable generic drugs that countless Americans rely on.

Rising Prices

According to the letter, the Healthcare Supply Chain Association (HSCA) recently revealed that certain drugs have undergone enormous increases in prices. For example, a bottle of 100 2mg pills of the asthma drug albuterol sulfate was available October 2013 for $11, whereas, by April 2014, the cost of the same bottle had risen to $434. Over that same period of time, a bottle of 500 100mg tablets of the antibiotic doxycycline hyclate rose from $20 to $1,849. According to the lawmakers’ letter, the HSCA has documented at least eight generic drugs that have seen price increases of more than 400 percent between October 2013 and April 2014.

Impact

To demonstrate the impact of the rising prices, the letter points to 1,500 stories that Senator Sanders and Representative Cummings received from individuals in the two week time period that they spent investigating the issue. Additionally, the letter points to the impact that the price hikes are having on industry. The letter gives the example of a recent report, which indicated that two Walgreens executives were let go for underestimating the cost of generic drug price increases by $1 billion.

Request

In light of the price increases, the letter requests that HHS provide lawmakers with the National Average Drug Acquisition Cost data maintained by CMS, so that the lawmakers can attempt to better understand and address the price increase trends. The letter also inquires as to the steps that HHS is taking to combat the price increases, the authority that HHS has to address the problem, and whether legislative action is required. In addition to writing to HHS, the lawmakers sent letters to 14 different generic drug manufacturers to ask why the prices those manufacturers are charging for generic drugs have increased so significantly in such a brief period of time.

Nursing Homes Under Fire for Lack of Sprinklers

CMS has indicated that as many as 385 nursing homes in 39 states have failed to meet requirements to install sprinkler systems to combat potentially deadly fires in those facilities. According to the Associated Press, the nursing homes with the non-compliant sprinkler systems house 52,000 patients who are being put at unnecessary risk of deadly nursing home fires.

“Sprinklered”

The lack of sprinklers poses a compliance problem for some nursing homes because of a deadline set by CMS requiring all nursing homes to be “sprinklered” by August 13, 2013. CMS warned that it would not grant extensions for the timeline that was officially set out in a 2008 final rule (73 FR 47075). According to the Associated Press, CMS has indicated that compliance has reached 97 percent, with 3 percent of facilities falling out of compliance on the sprinkler mandate. CMS reportedly told the Associated Press that “CMS and states are actively engaging with the rest of the facilities to verify their compliance with this regulation and will take appropriate actions for noncompliance to ensure the safety of residents.”

Slow Compliance

The path to sprinklers in nursing homes has been a slow one. In 2003, attention was brought to the issue when two nursing homes, without sprinkler systems, burned and left 31 people killed. One of the nursing homes that caught fire was the Greenwood Nursing Home in Hartford, Connecticut and the other facility was the NHC Healthcare Center in Nashville, Tennessee.  Although at the time of those fires, newly constructed facilities were required to have sprinkler systems, older facilities were not required to be retrofitted. In 2008, CMS issued the requirement that all nursing homes were to install sprinklers and gave the lengthy five year deadline for compliance. Despite the slow start, the numbers have improved from last December when, according to the Associated Press, CMS reported that 714 homes lacked adequate sprinkler systems.

Cost

One reason for the lack of compliance is the cost associated with the installation of adequate sprinklers. For example, in 2003, following the Greenwood fire, the estimated cost of installing sprinklers ranged from $270,000 to $363,000 depending on whether a system needed to be upgraded or no system was in place at all.

CMS Action

According to the Associated Press, CMS indicated that it could resolve continued non-compliance with the sprinkler requirement by denying payment and terminating a facility’s provider agreement. The agency did state that some providers may receive extensions due to extenuating circumstances if, for example, nursing homes are undergoing major renovations. Regardless of the action CMS takes to enforce the sprinkler requirement, compliance is important. The Government Accountability Office indicated in a 2004 report that no facility fully equipped with sprinklers has ever had a multiple casualty fire. Simply put, sprinklers save lives. In the words of Tom Burke, a spokesman for the American Health Care Association, the value of sprinklers as a “safety and patient safety feature is undisputed.

Kusserow’s Corner: Pharmaceutical Manufacturer Co-Payment Coupons May Violate the Anti-Kickback Statute

The HHS Office of Inspector General (OIG) issued a Special Advisory Bulletin regarding Pharmaceutical Manufacturer Coupons. The Bulletin put pharmaceutical manufacturers on notice that offering such coupons can be considered an improper inducement that could implicate the federal Anti-Kickback Statute (AKS). The AKS prohibits the knowing and willful offer or payment of remuneration to a person to induce the purchase of any item or service for which payment may be made by a federal health care program. Manufacturers may be liable under the statute if they offer coupons to induce the purchase of drugs paid for by federal health care programs, including Medicare Part D. The OIG Advisory Bulletin was released along with a report by their Office of Evaluation and Inspections (OEI) that focused on the fact that many pharmaceutical manufacturers are offering coupons to reduce or eliminate the cost of patients’ out-of-pocket copayments for specific brand name drugs. While the OIG acknowledged in the Bulletin that copayment coupons may encourage beneficiary adherence to medication regimens (particularly in cases of high copayment obligations), those benefits did not appear to outweigh its concerns, and the OIG reminded manufacturers that the manufacturers can donate to independent charities that provide financial support to patients without regard for the patient’s specific medication requirements.

OEI Report

The OEI focused on whether there are safeguards in place to prevent their copayment coupons from being used for drugs paid for by Part D, and identifying any vulnerability in those safeguards. Such use may cause beneficiaries to choose more expensive brand-name drugs over generics and therefore impose significant costs on the Part D program. The report assessed the safeguards that pharmaceutical manufacturers employ to prevent use of copayment coupons by Part D beneficiaries and identified two primary safeguards: (a) notices to federal health care program beneficiaries and pharmacists that the copayment coupon may not be used to purchase drugs paid for by a federal health care program; and (b) manufacturers’ use of pharmacy claims edits. OEI found:

  1. Use of coupons by Medicare beneficiaries could impose significant costs on the Part D program because many coupons encourage beneficiaries to choose more expensive brand name drugs over less expensive alternative drugs.
  2. Notices were by manufacturers inconspicuous and they had lack of access to Part D enrollment status data and resulting reliance on “proxies” to approximate Part D coverage.
  3. Manufacturers were unable to verify accuracy of claims edits because they do not audit the process.
  4. Current safeguards may not prevent all copayment coupons from being used for drugs paid for by Part D and as a result, pharmaceutical manufacturers are at risk of enforcement actions under the AKS.

A final point made by the reports was that primary insurers, including Part D plans, cannot undertake their own independent review of copayment coupon use by their beneficiaries because the coupons are typically processed as secondary insurance claims. The OIG recommended that CMS cooperate with industry stakeholders to identify potential solutions that will ensure coupons are not used for drugs paid for by Part D, including CMS’s facilitating verification of Part D enrollment and improving transparency of pharmacy claims data so Part D plans and other entities can more easily identify when coupons have been applied. CMS concurred in this recommendation. However, regardless of future actions by CMS, the offerors of coupons ultimately bear the responsibility to operate these programs in compliance with Federal law. Pharmaceutical manufacturers that offer copayment coupons may be subject to sanctions if they fail to take appropriate steps to ensure that such coupons do not induce the purchase of Federal health care program items or services, including, but not limited to, drugs paid for by Medicare Part D. Failure to take such steps may be evidence of intent to induce the purchase of drugs paid for by these programs, in violation of the AKS.

Richard P. Kusserow served as DHHS Inspector General for 11 years. He currently is CEO of Strategic Management Services, LLC (SM), a firm that has assisted more than 3,000 organizations and entities with compliance related matters. The SM sister company, CRC, provides a wide range of compliance tools including sanction-screening.

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Copyright © 2014 Strategic Management Services, LLC. Published with permission.

Kusserow’s Corner: Extendicare Health DOJ Settlement of $38 Million and Five-Year Quality of Care CIA with the OIG

The Department of Justice (DOJ) announced the largest “failure of care” settlement with a chain-wide skilled nursing facility (SNF) in the Department’s history. Extendicare Health Services, Inc. (Extendicare) and its subsidiary ProStep entered into a settlement with the DOJ and agreed to pay $38 million to resolve allegations that they billed Medicare and Medicaid for materially substandard nursing services that were so deficient that they were effectively worthless, and billed Medicare for medically unreasonable and unnecessary rehabilitation therapy services in 33 of its skilled nursing homes in eight states (Indiana, Kentucky, Michigan, Minnesota, Ohio, Pennsylvania, Washington, and Wisconsin). Overall, the chain provides services at 146 facilities in 11 states.

Two Relators brought separate cases against Extendicare; they will receive more than $2 million as their share of the recovery. [See United States ex rel. Lovvorn v. EHSI, et. al. C.A. 10-1580 (E.D. Pa) and United States ex rel. Gallick et al., v. EHSI et al., C.A. 2:13cv-092 (S.D. Ohio)].

Extendicare also will enter into a five-year chain-wide Quality of Care Corporate Integrity Agreement with the HHS Office of Inspector General (OIG) under which they must have a comprehensive compliance program with systems to address the quality of resident care. The compliance program must include, among other things, corporate-level committees to address compliance and quality, including a committee to assess staffing, and an internal audit program to assess the quality of care provided to residents. Extendicare must retain an independent monitor, selected by the OIG, who will regularly visit Extendicare’s facilities and report to the OIG, along with an Independent Review Organization (IRO) that will perform annual reviews of claims to Medicare.

This case is particularly significant in the fact that the fraud charges resolved by the settlement were for billing for sub-standard care. It helps set precedents for taking actions against other providers who provide services that did not measure up to quality of care standards. The DOJ allegations focused on the fact that Medicare and Medicaid were billed for materially substandard nursing services. They alleged that the services were so deficient that they were effectively worthless, and that Extendicare billed Medicare for medically unreasonable and unnecessary rehabilitation therapy services, meaning the claims were in fact false and fraudulent.

Richard P. Kusserow served as DHHS Inspector General for 11 years. He currently is CEO of Strategic Management Services, LLC (SM), a firm that has assisted more than 3,000 organizations and entities with compliance related matters. The SM sister company, CRC, provides a wide range of compliance tools including sanction-screening.

Connect with Richard Kusserow on Google+ or LinkedIn.

Subscribe to the Kusserow’s Corner Newsletter

Copyright © 2014 Strategic Management Services, LLC. Published with permission.