Dem leaders push for quick Graham-Cassidy CBO assessment; hearing scheduled

Democrats in both the House and Senate reacted quickly to the Graham-Cassidy legislation in requesting a full assessment from the Congressional Budget Office (CBO). The office stated that it is working on a preliminary assessment for the week of September 25, 2017, as early as possible. However, the CBO warned that point estimates on several matters will be unavailable for at least a number of weeks.

Graham-Cassidy legislation

Offered as an amendment to the American Health Care Act (AHCA) (H.R. 1628), the proposal would give more control to states over meeting their residents’ health care needs. The legislation would repeal the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148) and fund a block grant program through the Children’s Health Insurance Program (CHIP) instead (see Sanders’ Medicare-for-all, Graham-Cassidy’s block grant legislation introduced in Senate, September 14, 2017).

Finance hearing

The Senate Finance Committee will conduct a hearing on the Graham-Cassidy amendment on September 25, 2017. Committee Chair Orrin Hatch (R-Utah) announced the hearing, stating that it would allow members on both sides of the issue to better understand policy. In light of the Finance Committee’s hearing announcement, Sen. Ron Johnson (R-Wis), chair of the Senate Homeland Security and Governmental Affairs Committee, has chosen to cancel his committee hearing.

CBO request and response

According to Rep. Nancy Pelosi (D-Calif), “Republicans are reportedly hoping to rush to a vote with only a scant budget assessment.” The letter to the CBO requested information on loss of coverage, premium and out-of-pocket cost increases, effect on those with pre-existing conditions, Medicaid cuts, marketplace stability, and state reform timelines. The CBO will be unable to provide estimates on the effects on the deficit, coverage, or costs in its preliminary assessment.

AMA chimes in 

Ahead of a CBO report, the American Medical Association (AMA) believes that the bill would destabilize markets and cause millions to lose coverage. The association reached out to Senate Majority Leader Mitch McConnell (R-Ky) and Minority Leader Chuck Schumer (D-NY) to oppose the amendment and all legislation that would jeopardize coverage. The AMA holds the position that any health reform proposals should ensure that those currently insured are able to maintain their coverage, and expressed its concerned that the conversion of the Medicaid program would limit federal support for needy patients.

Stark law needs a check-up, says Senate Finance Committee

As Medicare payments move from fee-for-service to value-based and other alternative payment methods, are the Stark law’s prohibitions on physician self-referrals still relevant? In a July 12, 2016 hearing titled “Examining the Stark Law: Current Issues and Opportunities,” the Senate Committee on Finance heard testimony on how the law can be improved. Both the Committee Chairman, Sen. Orrin Hatch (R-Utah), and Ranking Member, Sen. Ron Wyden (D-Ore), agreed on the importance of coordination of care and of the Stark law (42 U.S.C. §1395nn) and expressed their hopes of reaching a bipartisan solution.

As background information for the hearing, Hatch released a white paper on how the Stark law is working in practice, highlighting the law’s complexity, the severity of its penalties, its significant compliance costs, and its effect on efforts to integrate health care delivery. The paper, “Why Stark, Why Now? Suggestions to Improve the Stark Law to Encourage Innovative Payment Models,” followed up on a December 2015 round-table discussion with Stark law experts.

Testimony focused on the difficulties and costs of compliance with the Stark law, particularly in light of the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148) and the Medicare and CHIP Reauthorization Act of 2015 (MACRA) (P.L. 114-10). Troy A. Barsky, partner at Crowell & Moring LLP and former CMS Director of the Division of Technical Payment Policy, called Stark law reform “overdue and necessary.” Barsky says that the law has become a “tangled web” of “conflicting standards, ambiguous and conflicting definitions, and volumes of regulations” that leaves compliance expensive and “unachievable as a practical matter.” He further called the Stark law an obstacle to health care delivery and reimbursement reform.

Ronald A. Paulus, M.D., President and CEO of Mission Health, a safety net health system in western North Carolina, explained the problems his organization faces with Stark law compliance. He said that the Stark law affects the health system’s ability to fully implement pay-for-performance programs, and affects day-to-day patient care in significant, negative ways. Paulus added, the law “creates a choking fog of uncertainty” and often “creates truly absurd outcomes that directly cause patient harm.” Further, he noted that CMS does not have the authority to address the problems with the Stark law, and called on Congress to act.

Lastly, Peter B. Mancino, Deputy General Counsel of the Johns Hopkins Health System Corporation, discussed the costs of compliance with the Stark law, including regular audits, training programs, and tracking programs. He discussed the organization’s roles as payor and provider, both at academic medical centers and community hospitals, which gives it a unique perspective. Mancino called the Stark law “the top compliance risk of our health system” and asked for “common-sense revisions that will make Stark more understandable and less burdensome to providers.”

Dollar signs tip the scales of medical judgment, physician-owned distributorship study finds

Physician-owned distributorships (PODs) will most certainly continue to be subject to increased government scrutiny after a recent Senate Finance Committee (SFC) investigation confirmed its suspicions that “PODs present an inherent conflict of interest that can put the physician’s medical judgment at odds with the patient’s best interests.” The report, “Physician Owned Distributorships: An Update on Key Issues and Areas of Congressional Concern,” provided more fuel for the argument that PODs have a distinct potential to violate fraud and abuse laws.

Kathleen McDermott, a partner at Morgan Lewis’ Washington, D.C. office, commented, “the findings of the SFC update are not a surprise but are important. PODs pose classic fraud and abuse risks for companies, physicians and hospitals and the SFC update shows most of all that the heat is on and should be to assure protection to the Medicare program and patients.”


The SFC requested the report based on its concerns that physician ownership of and self-referral to PODs result in:

  • anti-kickback statute (AKS) (42 U.S.C. §1320a-7b) and Stark law (42 U.S.C. §1395nn) violations;
  • physician conflicts of interest;
  • evidence of overutilization and higher health care costs;
  • danger to patients; continued medical industry confusion over legality; and
  • lack of transparency of physician ownership, including failure of PODs to meet their legal obligations to report under the Sunshine Act.

The report focused on PODs operating in the field of spinal surgery, but noted, “the POD business model could be used to market any type of medical device, and there are indications that PODs have started to appear in other fields beyond spinal surgery.”


The SFC reports a significant amount of overutilization by PODs, noting that “POD doctors see more patients, perform more surgeries, and perform more complex surgeries . . . [which] come at a cost, not only by increasing costs for the entire health care system, but also by harming patients who receive unnecessary treatment.” Having identified the continuing trends, McDermott said, “The Senate Finance Committee’s update assures continued scrutiny because it has confirmed over-utilization trends.”


According to the report, although a POD is taking some steps to try to mitigate the risks associated with its business model does not mean that the risks no longer exist. Hospitals face serious risks when they do business with PODs, and the only way to completely eliminate those risks is to not conduct business with any POD or any entity like a POD. This may not be as easy as it sounds. McDermott noted, “more troubling is the transparency findings where it appears many PODs are not disclosed to hospitals, preventing hospitals from managing a clear conflict of interest in the interests of patients.” She recommends that “hospitals should pro-actively collect information from its surgeons on participation in PODs and undertake policies that manage the conflict as well as the fraud and abuse risk. Some hospitals manage the risk by prohibiting PODs.”


The report recommended that the Government Accountability Office (GAO) evaluate the costs and benefits of requiring hospitals that purchase from PODs to perform enhanced utilization review. It also noted that CMS should consider withholding reimbursement from hospitals that have not adopted POD-specific policies and do not document that they consider the Sunshine Act database in making procurement decisions involving medical devices. Larger scale recommendations involved revising federal law to require doctors to disclose any interest they have in a POD to the hospital where they practice and to patients and expanding law enforcement efforts to investigate and prosecute hospitals and PODs that violate the law.

Hepatitis C drugs Sovaldi® and Harvoni® priced to maximize revenue, not access

Gilead Sciences, Inc. priced and marketed its Hepatitis C drug Sovaldi®–$1,000 per pill or $84,000 for a single course of treatment—to maximize revenue, rather than to foster broad, affordable access of the medicine, according to an 18-month investigation by the Senate Finance Committee. Sovaldi’s price was intentionally set high so that its follow-up drug, Harvoni®, could be more expensive, $94,500. Committee members Sens. Ron Wyden (D-Ore) and Chuck Grassley (R-Iowa) discussed the investigation’s findings, including the significant burdens placed on the Medicare and Medicaid programs by the drugs’ costs.


The Hepatitis C virus (HCV) is a contagious blood-borne virus that causes a liver infection known as Hepatitis C. Some individuals only develop short-term acute hepatitis C infection, but 70 to 85 percent of people infected with the virus develop a chronic infection that can result in long-term health problems, even death. The Centers for Disease Control and Prevention (CDC) warns that the majority of infected persons—an estimated 2.7 million Americans—might not be aware of their infection.

In 2013, Gilead obtained FDA approval to market Sovaldi, an antiviral medication that prevents HCV cells from multiplying. In the 18 months following Sovaldi’s approval, Medicare spent nearly $8.2 billion before rebates on Sovaldi and Harvoni. Over that same span, Medicare’s monthly spending on Hepatitis C treatments increased more than six-fold. Harvoni, a second-wave successor to Sovaldi that adds an additional ingredient to Sovaldi’s formulation, was approved for marketing in 2014. In that year, Medicare and Medicaid combined to spend more than $5 billion on the two drugs before rebates, with that total projected to climb in 2015. According to the Finance Committee, recent financial statements from Gilead show U.S. sales of Sovaldi and Harvoni totaled $20.6 billion after rebates in the 21 months following Sovaldi’s introduction.

Investigation findings

Over 18 months, the Senate Finance Committee reviewed 20,000 pages of Gilead’s internal company documents, dozens of interviews with health care experts, and a trove of data from Medicaid programs in 50 states and the District of Columbia. According to Wyden, there was no concrete evidence that Sovaldi’s price was set based on “basic financial matters” like research and development costs or Gilead’s acquisition of Pharmasset, which first developed the drug. He said that although “Gilead knew these prices would put treatment out of the reach of millions and cause extraordinary problems for Medicare and Medicaid,” the company chose to maximize revenue, “regardless of the human consequences.”

Among the investigation’s major findings:

  • Gilead justified Sovaldi’s high price point based on “price-per-cure” calculations that resulted in greater revenue per treatment than previous direct acting anti-virals.
  • Gilead underestimated the degree of access restrictions that it expected would result from its pricing decision.
  • Despite significant access restrictions, Gilead refused to offer substantial discounts and did not significantly modify its contracting strategy to improve patient access.
  • Although state Medicaid programs nationwide spent $1.3 billion before rebates on the drug in 2014, less than 2.4 percent of the roughly 700,000 Medicaid enrollees with Hepatitis C were treated with Sovaldi.
  • After competition entered the market, prices responded, but there are still significant concerns: particularly in the public payer community, about high costs for treating millions of people in the U.S. infected with Hepatitis C, as well as the budgetary effects of a future single source innovator that might not face competition as quickly.

Pricing reform

A new poll by STAT and the Harvard T.H. Chan School of Public Health found that most Americans believe the prices of brand-name prescription drugs are unreasonably high, with 70 percent saying Medicare should be able to negotiate lower prices for all prescription drugs. An additional 13 percent support negotiations for high-cost drugs only. The poll asked participants about the reasonableness of hypothetical situations, including one based on Gilead. In that case, 92 percent of respondents responded that it would be unreasonable if “a pharmaceutical company launched an exclusive new drug to cure hepatitis C and set the price at $1,125 per pill, or about $100,000 for a full course of treatment.”

Wyden and Grassley are committed to finding a bipartisan way to deal with high drug costs. Grassley said, “This report sheds light on one example of the pricing decisions made by one company with a new prescription medicine that entered the market without competition in high demand. This might be an example that received the most attention in some time, but it won’t be the last. I look forward to discussions with my colleagues and the public on the policy questions in the report.” Wyden added, “America needs cures for cancer, Alzheimer’s, diabetes and HIV. If those cures are unaffordable and out of reach to millions who need them, Congress will not have met its responsibilities to the American people. I reject the idea that America has to choose between soaring, out-of-reach drug prices and one-size-fits-all government policies. Solving this challenge will take fresh, bipartisan thinking and political independence to bring people together.”