Health Update - September 2016

by Manatt, Phelps & Phillips, LLP
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Manatt, Phelps & Phillips, LLP

In This Issue:
  • The Election’s Impact on Healthcare: Preparing for Potential Scenarios
  • What’s Up With WhatsApp? Implications for Healthcare Organizations
  • The TCPA and Healthcare: Understanding and Mitigating Risks
  • Spotlight on the FCA: Major Cases and Their Implications
  • Antitrust Corner: Can Antitrust Prevent Excessive Drug Price Increases?

The Election’s Impact on Healthcare: Preparing for Potential Scenarios

By Joel Ario, Managing Director, Manatt Health | Chiquita Brooks-LaSure, Managing Director, Manatt Health

Editor’s Note: Election 2016 will have a major impact on federal and state healthcare policy. To be prepared for all the possibilities, it’s critical to understand the political dynamics that will be in play under each potential scenario—and what they will mean for healthcare stakeholders.

In a new podcast, summarized below, Manatt Health addresses the key questions critical to effective strategic planning—and explores how the healthcare agenda will change at the federal and state levels, depending on the election results. To listen free, click here. To delve more deeply into the role states may play in driving innovation, click here to download a free copy of our new paper for the National Institute of Health Care Management (NIHCM), “Section 1332 Waivers: Will We See More State Innovation in Healthcare Reform?”

To be sure your organization is ready for any outcome, Manatt Health will present a customized briefing on the impact of election 2016 on federal and state health policy to your team. The presentation examines the health policy positions and priorities of the major presidential candidates…considers what a Clinton or Trump Administration would try to achieve administratively and legislatively…describes the role of states under different election outcomes…plays out the dynamics under the four most likely election scenarios…and shares key takeaways and next steps. To schedule a briefing for your team, please contact:

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What Issues Are Most Likely to Be on the Congressional Agenda, and How Does the Prognosis for That Agenda Change Based on Who Wins the Presidency?

There are many issues that will be on the healthcare agenda, regardless of who becomes president or what the makeup of the Senate and the House turns out to be. One key issue likely to generate a major debate in Congress is the Independent Payment Advisory Board (IPAB) that was included in the Affordable Care Act (ACA). IPAB has been extremely controversial, because it gives a board the authority to make changes to the Medicare program without congressional action. [Congress can overrule the decisions through supermajority vote.]

A second issue likely to be on the healthcare agenda is rising drug costs. The subject of drug pricing will be a topic of discussion whatever the election results—but will be addressed very differently depending on who is elected. Both candidates have strong positions, as does Paul Ryan, who has released a detailed plan around what the House Republicans would like to support in healthcare.

The third issue that will get attention is the expiration of some key provisions. The Children’s Health Insurance Program (CHIP) is up for reauthorization in 2017, and the Cadillac Tax, which was implemented as part of the ACA, has been delayed until 2020. Expiring provisions tend to encourage legislation. Clinton and Trump, as well as Ryan’s plan, all talk about making changes to the Cadillac Tax. [The Cadillac Tax is a 40% excise tax on high-cost employer health benefit plans.]

Both candidates, if they become president, would focus on Obamacare—but in radically different ways. A Clinton Administration would champion expanding on the ACA platform and might seek to accomplish some premium stabilization in Congress. As president, Clinton would support a new subsidy for people who have high cost-sharing in the Marketplaces—but that will be a tough road, if the Republicans control the House.

A Trump Administration would likely drive Marketplace disruption. With Trump in control, we’d probably see more authority going to the states, as well as changes in the benefit structure, including more flexibility, “skinnier” benefits, and higher deductibles.

If the Marketplaces do, in fact, face a rocky road in 2017, there will be at least a discussion in Congress about potential solutions. As we’ve seen in the past, however, it will be tough for Congress to get much done.

In What Areas Would a President Trump or Clinton Most Likely Make Changes Through Administrative Action?

If the next president faces a continuing stalemate in Congress, there are clearly things that he or she can accomplish administratively, starting with the Marketplaces. There are several initiatives that can be done behind the scenes to help stabilize the Marketplaces from insurers’ perspectives, such as tightening enrollment periods and strengthening incentives for younger, healthier people to participate. In addition, the Risk Adjustment Program has recently undergone some proposed changes that would ensure it was a truer measure of risk for insurers. A Clinton Administration will do all it can to advance initiatives that support the Marketplaces—but will be limited in what it can accomplish, if it can’t get congressional action.

A Clinton Administration also is likely to focus attention on the 19 states that have not yet expanded Medicaid. The uninsured rate already is at a record low. Expanding Medicaid in the remaining 19 states could bring insurance coverage to an additional 3 million to 4 million people.

In terms of Medicare, Clinton would continue the Center for Medicare & Medicaid Innovation (CMMI) program. There also could be a move toward prioritizing initiatives—focusing on a couple of major programs rather than trying to do 100 experiments.

In addition, as Secretary of State, Clinton was a devout practitioner of using task forces to accomplish goals. She already has announced that she would appoint a task force related to drug pricing, in response to the EpiPen issue. (For more information on the EpiPen issue, see the article later in this newsletter, “Antitrust Corner: Can Antitrust Prevent Excessive Drug Price Increases?”) We are likely to see a number of these kinds of focused task forces named under a Clinton Administration.

Clinton’s primary focus would be on supporting the ACA, while Trump’s would be the diametric opposite. He would try to erode the federal ACA provisions as much as he could from the administrative side. Rather than attempting to eliminate programs, it’s likely that he will try to devolve responsibility to the states. His agenda would call for doing as much as possible through 1115 and 1332 waivers and other mechanisms to give more flexibility back to the states.

Overall, it is hard to predict exactly what a President Trump would do, particularly in healthcare. When we look at his rhetoric, he’s taken some positions that are different than typical Republican views, such as letting Medicare negotiate drug prices.

When it comes to Medicare, the administration has developed greater authority to make changes to the program, and regardless of whether a Republican or a Democrat is in power, he or she would want to use that authority. That being said, how much either candidate can achieve will vary based on which party controls the Senate. Control of the Senate affects the ability of the president to act quickly to get agency heads and assistant secretaries in place and priorities advanced. Having to spend time on the Hill in preparation for hostile hearings takes away from a president’s ability to get things done.

Give the polarization in Congress, both candidates would most likely use their administrative authority to move their priorities forward. Even if the current administration finalizes the proposed rule around Part B, for example, the next administration would need to implement it—and would have the authority to change it. A President Clinton could use her administrative authority to address drug pricing issues. When it comes to Part D, we’ve seen a lot of speculation around how far CMMI could be used to make changes, but including Part D costs in demonstrations is something that we’re starting to see, and the next administration might want to look at that approach more closely.

While it’s not clear yet which presidential candidate will end up in the White House, it is likely that Paul Ryan will remain Speaker of the House, and whoever is president will need to find a way to get along with him. Ryan most likely will have a more limited and more conservative membership, as the people he will lose are the moderates. Therefore, he won’t have much flexibility. That may drive either a President Clinton or a President Trump to take refuge in doing things administratively that he or she can’t do with the House.

Where Will States Take on More of the Initiative for Change, Whether Through Federal Waivers or Their Own Authority?

We’re already seeing states implementing some major changes to Medicaid through 1115 waiver authority. A President Clinton would certainly encourage states to make changes and use her administrative authority to continue giving flexibility on the waivers Part of the reason is there are some things on her agenda that she knows are unlikely to be accomplished at the federal level, even with administrative authority.

For example, there have been discussions about a public option. That is something unlikely to get through the Congress or to be achieved administratively at the federal level. A state, however, could introduce a public option. Clinton also would likely encourage states to use 1332 waivers to launch initiatives that support her proposals to increase affordability.

While both candidates would support state action, their priorities would be different. A President Clinton might try to use waivers to push her agenda. A President Trump is much more likely to give states more authority to make more aggressive changes to Medicaid.

One area where we’re seeing states taking the initiative to change is transparency, particularly drug transparency. People are looking carefully at a Vermont law that targets 15 drugs that have had the biggest price increases in the last decade. States will be considering those types of transparency laws to try and spotlight drug cost issues in a new way. At the same time, consumer advocates and others are seeking greater transparency from insurers around drug formularies and other issues.

There are two sides to the continuing debate around drug costs. Some say insurance companies should work to ensure that costs aren’t borne directly by the consumer, while others say the problem is the rising drug prices. Increasingly, we’ll see these types of debates play out at the state level, simply because it’s going to be difficult to accomplish very much at the federal level.

In the end, most of the day-to-day issues get resolved at the state level. If there is a President Trump, there almost certainly would be more flexibility for states to experiment with approaches to deregulation in the Marketplaces. There is a lot of pent-up energy on the Republican side over the perception that there is too much regulation in Obamacare. Therefore, under Trump, we are likely to see efforts to give states more authority over their own Marketplaces.

In the end, the states are going to be important arenas to watch. With so much disagreement between the two parties, it could be attractive to both the left and the right to let the states experiment with different approaches and see what really works. Therefore, we are likely to witness more state experimentation, particularly driven by waivers. Medicaid expansion is really the only way that the red states have been able to reach agreement with the federal government in the last couple of years, and we’re likely to see that kind of state/federal partnership continue.

Whoever leads the next administration, it’s unlikely that we’ll see much achieved in Congress unless one party controls the presidency, the Senate and the House. Advances will be driven from the administration level, and even more so from the states over the next several years.

What’s Up With WhatsApp? Implications for Healthcare Organizations

By Jill DeGraff Thorpe, Partner, Manatt Health

Editor's Note: The article below looks at what the soaring popularity of WhatsApp—and the recent changes in its privacy policy—mean for healthcare organizations, as they consider their social media strategies. On October 4, Manatt will host a new webinar examining both the powerful opportunities and the legal risks that social media brings to healthcare. The program will share real-life scenarios for putting social media breakthroughs into practice, while ensuring compliance with the Health Information Portability and Accountability Act (HIPAA) and other consumer protection standards. Click here to register free.

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As WhatsApp's reach surges and its penetration deepens—even among hard-to-reach older and poorer populations—it is critical for healthcare organizations to gain insight into the pros and cons of its use, as well as its appropriate position within a larger social media strategy. The combining of WhatsApp and Facebook opens up new opportunities for strengthening and evaluating communications with key audiences—but also poses risks that are important to consider when defining WhatsApp's place in a social media program.

It's hard to overstate the popularity of WhatsApp, the Internet-based text and voice call mobile app acquired in 2014 by Facebook for $19 billion. Seven years after its founding, WhatsApp currently boasts 500 million monthly active users, roughly equivalent to a third of Facebook's 1.49 billion monthly active users. WhatsApp currently supports about 100 million voice calls daily. While this volume is only 3% of the roughly 3 billion or so calls made daily in the United States, the company didn't even offer voice services until February 2015.

The WhatsApp platform has many appealing advantages over other communications channels. WhatsApp eschews third-party banner ads, doesn't mine user-generated content, applies layers of security to keep communications within a person's social network private and provides end-to-end encryption to keep messages, voice calls and uploaded files private. Pairing this relatively noncommercial and private channel with Facebook's reach and social marketing analytics opens up new possibilities for the way healthcare organizations devise their social media and consumer engagement strategies.

WhatsApp does not yet support widespread consumer-to-business direct communications. However, recent changes to the WhatsApp Terms of Service and Privacy Policy suggest that it is moving in that direction. In the not too distant future, it may be possible for healthcare organizations to integrate Facebook social marketing with a private connection so consumers can privately schedule an appointment, submit biometric data, receive health coaching or participate in a private group.

Of concern to privacy watchdogs is that WhatsApp will begin integrating its service with Facebook to "improve its services" and unify efforts across all Facebook platforms to fight spam, make product suggestions and show relevant offers and ads on Facebook. None of the changes, which took effect on August 25, 2016 for new WhatsApp users, will result in data mining or sharing of user-generated content from WhatsApp messages, photos or account information. Even so, the Federal Trade Commission (FTC) has apparently signaled its intention to carefully review the revised Terms of Service and Privacy Policy, to determine whether any changes are deceptive or violate a 2011 settlement agreement that Facebook made with the FTC in connection with earlier misuses of personal data.

10 Key Considerations for Healthcare Organizations

While the FTC undertakes this review, healthcare organizations could benefit from developing a better understanding of how WhatsApp operates, and its anticipated role in Facebook's revenue growth.

To determine the role WhatsApp could play in their own social media strategies, here are the top 10 things that forward-thinking healthcare organizations should know about WhatsApp:

1. Scale and Code Stability. A service as big and complex as WhatsApp does not become successful without immense IT, talent and financial resources. Like Amazon, which built the profitable Amazon Web Services as a white-label version of its underlying service platform, Facebook is positioning WhatsApp as an infrastructure-as-a-service business solution for Internet-based direct-to-consumer communications.

2. Security. WhatsApp rankled government officials last spring when it introduced end-to-end encryption to its app, but even before that, the WhatsApp platform was built for privacy. Messages are stored on the device associated with an individual's cell phone number, not on multiple devices. WhatsApp servers delete messages after they are delivered, or if a message has not been delivered within 30 days. Undelivered messages are encrypted with an irreversible one-way hash that makes it nearly impossible to decrypt a message without the recipient's phone. On its face, WhatsApp's focus on privacy may seem counterintuitive to Facebook's core business, except that businesses want to keep their conversations with customers private and, at the same time, use Facebook to prompt consumers to initiate private conversations. For an infrastructure-as-a-service business solution to be successful, Facebook has to keep these communications secure from the prying eyes of its natural language processing algorithms.

3. Identity Authentication. Facebook's growth depends on its continuous vigilance to root out and proactively guard against identity theft. Healthcare organizations are subject to Meaningful Use and the Health Information Portability and Accountability Act (HIPAA) Security Rule to implement identity authentication controls on their patient- or member-facing portals. A disinterested observer might reasonably conclude that Facebook's systems for authenticating a user's identity are sufficiently strong for at least some types of personal health information.

4. Reach. Anyone with a smartphone, cell phone number and Internet connection can use WhatsApp. Some WhatsApp users might even forego cellular data service entirely if they can make phone calls wherever they have Wi-Fi-based access to broadband. Widely available, free broadband access and Wi-Fi may be expected over time. For example, New York City has awarded a 12-year contract for CityBridge to build a free, city-wide Wi-Fi network. For its part, Facebook intends to launch satellites to support free, next-generation (5G) broadband, worldwide. To the extent widespread free broadband becomes a reality, more consumers could switch to WhatsApp as their only voice call and data service carrier. Healthcare organizations should consider a scenario in their social media and digital outreach strategies that has WhatsApp becoming a major telecommunications platform in the future.

5. Insurgent Pricing. WhatsApp is free to end users, adding another significant inducement for consumers to use its platform. WhatsApp's insurgent pricing strategy is the cost of building a two-sided market, paid for by businesses seeking direct-to-consumer access.

6. Access to Traditionally Underserved Demographics. According to Pew Research Center, smartphone adoption by older adults and low-income people continues to rise. Indeed, Pew's surveys suggest that smartphones are often the only (or primary) means for them to gain access to the Internet. Since the cost of broadband and data plans are contributing factors to low adoption by these populations, WhatsApp's free-to-end-user model makes it more enticing for these harder-to-reach populations to adopt the mobile app. Facebook's social marketing tools may be off-limits inside the WhatsApp platform, but they can still be used by healthcare organizations to reach these underserved populations.

7. One Platform, Many Channels. Given its ability to secure text message, voice call, voicemail recordings and file uploads, WhatsApp may be able to offer businesses a single unifying platform for engaging consumers across modalities. This would allow healthcare organizations to streamline the number of digital health tools they need to engage consumers.

8. Banner and Spam-Free. While Facebook's revenue model depends on targeted placement of advertising content in its users' newsfeeds, WhatsApp has always been, and under its new Terms and Privacy Policy remains, free of third-party banners and spam. This policy, not shared by Facebook, may alleviate some concerns of healthcare organizations that they have limited control over the commercial content posted alongside their private digital interactions with consumers.

9. WhatsApp and Facebook Are Not HIPAA Business Associates, Yet. There are downside risks that healthcare organizations need to address with WhatsApp, as they do with evaluating all digital technologies. Facebook has not signaled whether it would sign business associate agreements in its new business venture. It would be difficult for Facebook to avoid becoming a business associate, because it would have to restrict and monitor information transmitted in WhatsApp between healthcare organizations and consumers. Since WhatsApp's central proposition is built on privacy and security, Facebook would have to seek other avenues for it not to be treated as a business associate.

10. Who Should Be in Charge? Another downside risk is that Facebook can change its Terms of Service or Privacy Policy at any time with few legal constraints (the terms of its 2011 settlement agreement being one such constraint). Healthcare organizations need to carefully consider whether they feel comfortable building a consumer engagement program on top of WhatsApp and other Facebook properties, with the possibility that Facebook could unilaterally change its Terms or Privacy Policy. As with the EU Safe Harbor Privacy Policy Framework (since replaced by Privacy Shield), there is precedent for Facebook to enter into agreements that bind it to specified standards and practices. Depending on the degree of support WhatsApp gains among healthcare organizations, developing such a global business associate agreement with healthcare organizations might not be such a bad idea.

The TCPA and Healthcare: Understanding and Mitigating Risks

By Marc Roth, Partner, Co-chair, TCPA Compliance and Class Action Defense

Editor’s Note: In a two-part webinar for Bloomberg BNA, Manatt examined the most significant legal developments that life sciences companies need to watch in the year ahead. Through an ongoing series of articles, we are sharing some of the key issues examined during the program, as well as guidance on navigating safely through an increasingly complex healthcare landscape. Below we summarize the presentation on “TCPA and Healthcare.” If you’d like to view the webinar free on demand, click here to access Part 1 and here to access Part 2. If you would like a copy of the presentations for your continued reference, click here to download a free PDF.

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An Overview of the TCPA: Definition and Damages

The Telephone Consumer Protection Act (TCPA) impacts any company that communicates with consumers and businesses via telephone, facsimile or text messages. Whether the communications are designed to share information, gather information or market products or services, the sender must have the consent of the recipient or face significant fines and damages.

Enacted in 1991, the TCPA addresses consumer privacy issues, primarily for pre-recorded telemarketing calls to people’s homes or calls to mobile phones, where the cost of receiving calls shifts from the caller to the recipient. The TCPA authorizes the establishment of the federal Do Not Call list. In addition, it sets the rules for the types of consent needed to make certain types of calls. It also establishes a private right of action for aggrieved consumers that’s not generally available under the Federal Trade Commission’s (FTC) Telemarketing Sales Rule.

The TCPA is extremely attractive for plaintiffs. It provides for statutory damages of $500 per call or text or actual damages, whichever is greater, and up to $1,500 per call for willful or knowing violations. Clearly, there are significant potential damages for violations. For example, if a company were sending 10,000 text messages at $500 per text, it could face $5 million in potential damages. Importantly, there’s no cap on statutory damages. As a result, there are numerous multi-million dollar settlements each year.

TCPA Requirements

The TCPA requires consumer consent before using an autodialer to send texts or make calls to mobile phones, as well as for sending pre-recorded marketing messages to landlines. The level of consent required under the TCPA is determined by the content of the message. Commercial or telemarketing calls require a higher level of consent. Calls that are purely informational require a lesser level of consent. There are also some exemptions in the TCPA, such as emergency notices, messages from service carriers (such as AT&T and Verizon) and healthcare messages under the Health Information Portability and Accountability Act (HIPAA).

The Threshold Question

When considering placing calls to mobile phones, there is one central question: “Is an autodialer being used?” The TCPA defines an autodialer as a system that has the “capacity to store or produce telephone numbers to be called using a random or sequential number generator and to dial such numbers.”

When the law was enacted in 1991, Congress recognized that there were abuses with autodialed calls that were made using numerical sequences or randomly in the hopes of reaching someone. But today’s world is different. Legitimate companies now use predetermined lists to reach consumers, usually developed through business leads or third parties. The issue is that the statute continues to define autodialers as “the capacity to store and produce telephone numbers…” That has been a problem in litigation. Plaintiffs plead that companies are using autodialers. But when companies use a dialer today, the numbers are not automatically dialed. Numbers are entered into the system, and someone has to press a button to make the call.

As a result, companies and industry associations have petitioned the Federal Communications Commission (FCC) for a clear definition of an autodialer. Last July, the FCC issued a ruling saying that a system can be an automatic dialing system if it has the “potential capacity to autodial,” even though it’s not currently being used for autodialing. The ruling rejected petitions seeking a “present” capacity definition. It also said that, if a system requires a software fix or the unlocking of a dormant function to perform autodialing, it is still an autodialer.

The FCC did caution that “theoretical capacity” is not sufficient to classify a system as an autodialer. It did not, however, detail what theoretical capacity means, specify how easy it must be to modify a system for autodialing or define what the system is. Therefore, the only safe dialer that’s not an autodialer is a traditional rotary phone.

Consent for Informational or Transactional Calls

The TCPA draws a distinction between informational calls and marketing calls. Examples of informational calls include debt collection, political messages, airline notifications, surveys or research calls, bank balances and fraud alerts, school notifications and payment reminders. These are messages that the FCC considers “expected and desired by consumers” and are thus not marketing.

Informational calls require prior express consent. The FCC has ruled that if consumers provide their cell phone numbers to the caller, whether in writing or orally, they have given consent for the caller to contact them for informational or transactional messaging, but not for marketing.

There are critical points to consider, however. For example, in the recent Kolinek v. Walgreen Co. case, Mr. Kolinek sued Walgreens because he had received a text message reminding him to refill a prescription. He had provided Walgreens with his mobile number when he picked up his prescription but had supposedly been told that it would only be used to verify his identity for future refills. When Walgreens used the number to send text messages with the refill reminders, Mr. Kolinek sued on behalf of all similarly situated consumers.

The Court denied Walgreens' motion to dismiss because questions remained about the context in which Mr. Kolinek and other members of the class provided their phone numbers and the expectations of how the numbers would be used. The case eventually settled for $11 million. As this case demonstrates, it’s important to consider consumers’ expectations when they provide their phone numbers.

Consent for Telemarketing Calls

Under the TCPA, there are two types of calls that require a higher level of consent:

  • An “Advertisement,” which is defined as “any material advertising the commercial availability or quality of any property, goods, or services.”
  • Telemarketing, which is defined as “…the initiation of a telephone call or message for the purpose of encouraging the purchase or rental or investment in property, goods, or services which is transmitted to any person.”

Advertisements and telemarketing require “prior express written consent.” Prior written consent is “an agreement in writing, bearing the signature of the person called, that clearly authorizes the seller to deliver or cause to be delivered to the person called advertisements or telemarketing messages using an automatic telephone dialing system or an artificial or pre-recorded voice, and the telephone number to which the signatory authorizes such advertisements or telemarketing messages to be delivered.”

Written agreements, which can be electronic, must clearly and conspicuously disclose that:

  • The agreement authorizes the seller or the caller to deliver telemarketing calls using an automatic telephone dialing system or an artificially prerecorded voice. and
  • The person is not required to sign the agreement or enter into the agreement as a condition of purchasing any products or goods or services.

Prior express written consent can be obtained in print, online or through an Interactive Voice Response (IVR) service. The agreement must include the consumer’s wireless number, as well as his or her signature. If the agreement is online or through IVR, it must satisfy the ESIGN Act, with consumers having to click or press a key to provide their electronic signatures. If the agreement is executed over the phone, the call must be recorded.

What If Calls Contain Both Informational and Marketing Content?

According to a July 2003 FCC Report and Order, if a call or text contains both informational and marketing content, it’s considered a marketing call. If the content includes any type of marketing message, it puts the entire call in the marketing category.

For example, if a mortgage broker calls to inform customers of lower interest rates—even though customers want that information—the call is considered marketing because it’s communicating the availability of a new mortgage product. Calls from phone companies introducing new calling plans or from credit card companies offering overdraft protection fit a similar profile and also are considered marketing.

Companies can include URLs in text messages, if they are strictly for informational purposes. If the URL links to any kind of marketing on the company’s web site, however, it becomes problematic.

The TCPA and HIPAA

The FCC recognizes that HIPAA offers certain privacy protections that are the same as or exceed those of the TCPA. Therefore, in certain areas, the FCC has provided a carve-out for messages that are subject to HIPAA.

In its October 16, 2012 ruling, the FCC added two exemptions from the prior express written consent requirement for marketing calls:

  • Artificial voice or prerecorded telemarketing calls to residential phones are exempt from the TCPA’s prior express written consent rules, if the call delivers a healthcare message made by or on behalf of a covered entity or business associate, as defined under the HIPAA Privacy Rule.
  • Mobile phones have a similar exemption, requiring only prior express consent—meaning that the consumer has provided his or her mobile number to the caller.

What Is a Healthcare Message?

If a call is healthcare related or delivers a healthcare message, the HIPAA rules apply. If it’s not healthcare related, the TCPA rules apply. But what is a healthcare-related call or healthcare message?

A healthcare-related call or healthcare message must be from a covered entity or a business associate, as those terms are defined in the HIPAA Privacy Rule. The challenge is that, while the HIPAA Privacy Rule addresses the use and disclosure of protected health information (PHI), it does not make it clear what constitutes a healthcare message.

In its 2012 ruling, the FCC offered the following examples of calls that would be eligible for the exemption: prescription refills, immunization reminders, post-hospital discharge follow-up, health screening reminders, medical supply renewal requests and generic drug migration recommendations.

Marketing Under HIPAA

HIPAA has its own definition of what is and isn’t marketing. Under HIPAA, marketing is “a communication about a product or service that encourages recipients of the communication to purchase or use the product or service.” A communication is not marketing if it imparts information about a product or service that is included in a healthcare benefits plan offered by a covered entity, gives information concerning treatment or describes goods or services for case management or care coordination.

The 2015 FCC Ruling: Exigent Healthcare Message Exemption

In 2015, the FCC issued another ruling in response to several petitions seeking an exemption from the TCPA’s consent requirement for calls or messages that impart sensitive and exigent health information. Broader than the 2012 exemption, the 2015 ruling exempts messages that are expected and desired by consumers, such as appointment reminders, lab results, wellness checkups and preoperative instructions. The FCC granted the exemption, but placed significant restrictions on their use, which, in many people’s opinion, make it moot. These conditions include:

  • The call must be free to the end user.
  • The customer must provide the wireless phone number to the caller.
  • The message must contain certain disclosures.
  • The message may not contain any telemarketing, cross-marketing, solicitation, debt collection or advertising content.
  • The message must be short—one minute or less for calls and 160 characters or less for texts.
  • There must be an easy opt-out mechanism and an immediate honoring of opt-out requests.
  • There can be no more than one message per day, three messages per week, per sender.

Analyzing Risk

To analyze their risks of violating the TCPA, organizations should ask themselves the following questions:

  • Does the technology being used trigger the TCPA’s consent requirements? (It’s important to ensure that the dialer does not have the capacity to autodial.)
  • Is the type of number being dialed mobile or residential? (The autodialer issue only comes up for mobile numbers.)
  • Is the message likely to be deemed telemarketing or an advertisement under the TCPA?
  • If the answer is yes, does an exemption or exception apply, such as the HIPAA exemption?
  • If HIPAA does apply, is the call likely to be considered marketing under the HIPAA Privacy Rule?

Mitigating Risk

When seeking to mitigate risk, organizations might consider the solutions on the market that scrub mobile numbers from call lists. They are not perfect, but they do reduce the risk of inadvertently dialing a cell phone.

Taking the following steps is the most effective way for organizations to avoid TCPA liability:

  • Get and maintain the proper level of consent.
  • For residential phones, use live agents and avoid prerecorded messages and artificial voices.
  • For mobile phones, have live agents make manually dialed calls.
  • Have members/subscribers identify the type of phone numbers they are providing.
  • Hire a vendor to scrub for phone type—and scrub Do Not Call, wireless and reassigned number databases. (The number reassignment issue arises when someone provides consent and then changes her phone number and the old number is reassigned to a different individual who did not give consent.)
  • Ensure the collection of consumer phone numbers is not limited. Don’t request consent for one specific purpose. Keep the request broad.
  • Make sure to get prior express written consent for marketing messages/calls. Companies can obtain prior express written consent through member applications, account logins, customer service calls and online lead forms.

NOTE: After the webinars, on July 28, 2016, Anthem, Blue Cross Blue Shield of America, Well Care Health Plans and the American Association of Healthcare Administrate Management submitted a petition for an expedited declaratory ruling from the FCC, seeking to clarify provisions in the FCC’s July 15 Order related to healthcare calls. The petition states that it was made at the request of the staff of the FCC’s Consumer Protection and Governmental Affairs Bureau. The proposed revision would clarify the FCC’s analysis of what constitutes “prior express consent” when non-telemarketing calls are made by HIPAA-covered entities or their business associates. The revisions would also clarify that “prior express consent” can pass through a third-party intermediary (such as a state Medicaid agency), if the party’s interaction with an individual is subject to HIPAA. As revised, Paragraph 141 of the July 15 Order would read (with bold indicating changes/additions):

Para. 141: “We clarify, therefore, that provision of a phone number to a HIPAA “covered entity” or “business associate” as defined by HIPAA’s implementing regulations, whether by an individual, another covered entity, or a party engaged in an interaction subject to HIPAA, healthcare provider constitutes prior express consent for treatment, payment, and health care operation healthcare calls subject to HIPAA[] by a HIPAA-covered entity and business associates acting on its behalf, as defined by HIPAA, if the covered entities and business associates are making calls within the scope of the consent given, and absent instructions to the contrary.” Examples of Prior Express Consent include, but are not limited to, the provision of a telephone number by an employer or a party authorized to implement the health insurance enrollment, application or renewal process on its behalf, and a state Medicaid agency or another governmental entity and/or their business associate(s) engaged in an interaction subject to HIPAA.

The petitioner also seeks a declaratory ruling relating to the “free-to-end-user” aspect of the exemption. The July 15 Order reads that the exemption only applies to “healthcare providers.” As revised, the July 15 Order exemption would also apply to a HIPAA-covered entity or business associate.

Spotlight on the FCA: Major Cases and Their Implications

By Ken Julian, Partner, Litigation | John Libby, Partner, Corporate Investigations and White Collar Defense | Jacqueline Wolff, Partner, Corporate Investigations and White Collar Defense

Editor’s Note: Below we summarize recent key False Claims Act (FCA) cases that impact healthcare. The article reviews a recent Ninth Circuit case that allowed a qui tam relator’s action against various Medicare Advantage organizations to proceed, holding that the relator had adequately stated a “cognizable legal theory” of liability under the FCA in connection with the organizations’ practices regarding retrospective medical record reviews. In addition, it covers an interesting District of Massachusetts case that clarified what constitutes an “alternative remedy” under the FCA. It also discusses a recent increase by the Department of Justice (DOJ) in the civil monetary penalty amounts imposed under the FCA—effective August 1, 2016—that made the cost of violating the FCA much more prohibitive. Finally, it highlights recent government FCA resolutions.

The authors would like to thank Arun Bhoumik, Partner, Corporate Investigations and White Collar Defense; Michael Kolber, Associate, Manatt Health; and Kimo Peluso, Partner, Litigation for their contributions.

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United States ex rel. Swoben v. United Healthcare Insurance Company et al.

On August 10, 2016, the Ninth Circuit vacated a Central District of California court’s judgment that had dismissed without leave to amend the third amended complaint of qui tam relator James Swoben (Swoben). Swoben had alleged that the defendant Medicare Advantage (MA) organizations United Healthcare, Aetna, WellPoint and Health Net (Defendants) submitted false certifications to the Centers for Medicare & Medicaid Services (CMS) in connection with risk adjustment data, in violation of the FCA. The Ninth Circuit remanded the case with instructions to allow Swoben to file a proposed fourth amended complaint. In so doing, the Court held that Swoben’s proposed fourth amended complaint sufficiently alleged that the Defendants violated the FCA by using biased review procedures designed to not reveal erroneously reported diagnosis codes.

The ruling will have significant implications for health insurers and their risk adjustment vendors, not only in MA, but also in Medicaid managed care and the individual and small group commercial health insurance markets. The Ninth Circuit held that, even though the MA regulations may not require MA organizations to conduct retrospective chart reviews to verify submitted diagnosis data, when MA organizations choose to do so—and especially when CMS’s risk adjustment data validation efforts independently document a high error rate—MA organizations must design chart reviews to identify over-reported diagnosis codes that could reduce federal payments to MA plans, and not just underreported diagnosis codes that could result in higher payments to plans. Because such retrospective chart reviews are common throughout risk-adjusted health insurance programs, the ruling creates new compliance concerns for insurers, even if they do not participate in MA.

Swoben filed a qui tam complaint alleging that, commencing in 2005, the Defendants and a physician group (which provided care to enrollees in exchange for a percentage of the organizations’ capitated payments) performed biased reviews of enrollee health risk data that were designed to “cause the CMS to make inflated capitated payments” to the Defendants. Specifically, Swoben alleged that, where Medicare Advantage organizations engaged in retrospective reviews of previously reported risk adjustment data, they must identify (and report to CMS) both favorable and unfavorable errors. Unfavorable errors would include previously submitted diagnosis codes that were “not supported by the enrollee’s medical records (over-reporting errors).” Swoben alleged that Defendants’ one-sided retrospective reviews, designed to identify only unfavorable errors, rendered their periodic required certifications to CMS false in violation of the FCA.

The Defendants moved to dismiss Swoben’s claims in June 2013, arguing among other things that his complaint failed to allege a claim under the FCA. The district court granted the Defendants’ motion to dismiss, and denied Swoben leave to amend. Swoben appealed to the Ninth Circuit, which asked the parties to submit a supplemental briefing to address “when conducting retrospective medical record reviews designed to identify only diagnoses that would trigger additional payments by CMS, not errors that would result in negative payment adjustments, would cause a certification to be false” under the FCA. Although the Government declined to intervene in district court against Defendants, the Justice Department did file an amicus brief on appeal in support of Swoben, upon which the Court relied in vacating the district court’s judgment.

The Court found that the district court had erred as to the sufficiency of Swoben’s allegations to support his FCA claims:

when … Medicare Advantage organizations design retrospective reviews of enrollees’ medical records deliberately to avoid identifying erroneously submitted diagnosis codes that might otherwise have been identified with reasonable diligence, they can no longer certify, based on best knowledge, information and belief, the accuracy, completeness and truthfulness of the data submitted to CMS. This is especially true, when, as alleged here, they were on notice that their data included a significant number of erroneously reported diagnosis codes. We do not see how a Medicare Advantage contractor who has engaged in such conduct can in good faith certify that it believes the resulting risk adjustment data reported to CMS are accurate, complete and truthful.

The Court made clear that “[b]y holding that one-sided retrospective reviews can result in false certifications under § 422.504(l), we do not suggest that they necessarily always do… We do not in this opinion attempt to define the parameters of these requirements.” Instead, the Court said that “[w]e hold only that the theory alleged here—that the defendants designed their retrospective review procedures to not reveal unsupported diagnosis codes, allegedly for no other reason than to avoid reporting that information to the government—states a cognizable legal theory under the False Claims Act.”

The Court also clarified that its decision did not invalidate the practice of “blind coding.” The Court held “[w]e also do not intend to suggest that the practice of concealing previously submitted diagnosis codes from coders conducting retrospective reviews is necessarily a suspect practice. On the contrary, blind coding may help ensure the integrity of a retrospective review.” However, the Court said that “blind coding cannot be squared with the good faith required by § 422.504(l) when it is employed as a means of avoiding or concealing over-reporting errors. If Medicare Advantage organizations acquire the codes identified by retrospective coders, compare them to the codes previously submitted to CMS, identifying both under- and over-reporting errors, but withhold information about the over-reporting errors from CMS, this would result in a false certification.” The Court went on to helpfully give an example of when blind coding would pass muster, stating “[o]n the other hand, if through reasonable diligence the comparison between the codes identified by the retrospective reviewers and the codes previously submitted to CMS is capable of identifying only under-reporting errors, we assume this would not result in false certifications under current CMS regulations. The due diligence standard requires only reasonable efforts.”

The Court thus concluded that “[t]he district court abused its discretion by dismissing Swoben’s third amended complaint without leave to amend. Swoben’s proposed fourth amended complaint adequately alleges a false certification claim under the False Claims Act, so amendment would not have been futile.”

United States ex rel. Willette v. University of Massachusetts

On July 11, 2016, a District of Massachusetts judge ruled that where an entity voluntarily repaid stolen funds—after proactively cooperating with the government to do so as soon as the theft was discovered—there was no “alternative remedy” pursued by the government under the FCA that would entitle a qui tam relator to a share of the recovery. The case is interesting because the underlying qui tam lawsuit was brought under a nontypical provision of the FCA—dealing with the retention of funds owed to the government rather than the filing of false claims—and the qui tam relator was seeking his “relator’s share” under the similarly nontypical “alternative remedy” provision of the FCA qui tam statute.

To briefly recap the facts of the case, in 2013 an employee (Relator) of the University of Massachusetts, Worchester (UMass) informed UMass that a deceased coworker, a financial analyst in UMass’s estate recovery division, had misappropriated approximately $3.8 million in healthcare reimbursements that were intended for remittance to the Massachusetts Executive Office of Health and Human Services (EOHHS). The facts show that “the decision to repay the Commonwealth was made almost immediately after UMass officials found out about [the deceased employee’s] conduct, although it took time to investigate the matter and determine the appropriate method of repayment.”

In 2015, after a two-year internal investigation and cooperation with the EOHHS and the Medicare Fraud division of the Massachusetts Attorney General’s Office, UMass repaid the misappropriated funds to the EOHHS in full. During the two-year investigatory period, the Relator filed qui tam actions against UMass and the deceased employee’s estate under both the federal and commonwealth FCA statutes, and even though the underlying FCA actions were subsequently dismissed, the Relator still sought a qui tam whistleblower award—which was the subject of the instant case.

In December 2015, the District of Massachusetts judge granted the parties two months of limited discovery in order to investigate the “issue of whether [the Relator] may be entitled to a relator’s share pursuant to the ‘alternate remedy’ provision of the FCA, 31 U.S.C. § 3730(c)(5).” After hearing oral argument in June 2016, the judge denied the Relator’s motion on July 11, 2016.

In his opinion, the judge first reviewed the congressional intent behind the enactment of the FCA and the qui tam provisions, stating that the applicable statutory language at issue in this case “imposes liability on a person who ‘has possession, custody, or control of property or money used, or to be used, by the Government and knowingly delivers, or causes to be delivered, less than all of that money or property.’ § 3729(a)(1)(D).” Furthermore, Section 3730(c)(5) of the FCA allows a qui tam Relator to share in any recovery if the government chooses to pursue an “alternative remedy” to intervening in the Relator’s qui tam lawsuit, as follows:

[T]he Government may elect to pursue its claim through any alternate remedy available to the Government, including any administrative proceeding to determine a civil money penalty. If any such alternate remedy is pursued in another proceeding, the person initiating the action shall have the same rights in such proceeding as such person would have had if the action had continued under this section.

Thus, the issue at hand was whether the course of action the government pursued in this case constituted an “alternative remedy” entitling the Relator to his share of the recovery. The judge ruled that it was not, stating that “I find no indication that either the Commonwealth or the United States pursued an alternate remedy against UMass or the [deceased employee’s] estate.” The judge concluded that, based on the factual record, “[t]here was no need for an alternate remedy, because UMass began investigating the fraud immediately and never exhibited an intent to withhold repayment of the stolen funds.” Furthermore, “there is no evidence that UMass’s actions were motivated by the Relator’s lawsuit, or that the Commonwealth or the United States took affirmative action to enforce the repayment.” Thus, although the Relator “unquestionably did the honorable thing by alerting UMass of [the deceased employee’s] misconduct, he is not entitled to a share of the proceeds under the FCA or MFCA.”

Increase in FCA Civil Monetary Penalties

In an attempt to keep up with inflation, the DOJ made the civil liability penalties for violating the FCA provisions much more cost-prohibitive. On June 30, 2016, the DOJ posted a “Civil Monetary Penalties Inflation Adjustment” (via an “Interim Final Rule with Request for Comments”) in the Federal Register that made inflationary adjustments to the civil monetary penalties imposed under numerous statutes administered by the DOJ, including the FCA. The adjustments for the FCA took effect on August 1, 2016 and provided for a steep, almost double increase in the civil monetary penalty amounts applicable to FCA violations that occurred after November 2, 2015 as follows: The new minimum per-claim penalty amount increased from $5,500 to $10,781, and the maximum per-claim penalty amount increased from $11,000 to $21,563.

Recent FCA Resolutions

  • On July 28, 2016, the DOJ announced that Lexington County Health Services District Inc. d/b/a Lexington Medical Center (LMC) agreed to pay $17 million to resolve FCA and Stark Law violations: The DOJ said that the South Carolina hospital ran afoul of the Stark Law (a.k.a. the Physician Self-Referral Law) which generally—subject to limited exceptions—prohibits a hospital from billing Medicare for services referred by physicians who have a financial relationship with the hospital. In this case, the DOJ alleged that LMC (which did not admit to liability) violated the Stark Law by entering into either asset purchase agreements (for the acquisition of physician practices) or employment agreements with 28 physicians that improperly “took into account the volume or value of physician referrals, which were not commercially reasonable or provided compensation in excess of fair market value.” As part of the settlement, LMC agreed to enter into a Corporate Integrity Agreement with the Department of Health and Human Services Office of the Inspector General (HHS-OIG) that required it to implement measures designed to avoid or promptly detect future similar misconduct. Qui tam whistleblower to receive award of $4.5 million.
  • On July 22, 2016, the DOJ announced that Acclarent, Inc. (Acclarent) agreed to pay $18 million to resolve FCA allegations that it caused healthcare providers to submit false claims to federal healthcare programs in connection with one of its medical device products: The DOJ alleged that California-based medical device manufacturer Acclarent (a subsidiary of Ethicon, a Johnson & Johnson company) agreed to pay $18 million to resolve allegations that it caused healthcare providers to submit false claims to Medicare and other federal healthcare programs by marketing and distributing one of its products, the Relieva Stratus, for use as a drug delivery device without U.S. Food and Drug Administration approval. Acclarent did not admit liability in the settlement. Related to the settlement, the DOJ said that on July 20, 2016, Acclarent’s former Chief Executive Officer and Vice President of Sales were convicted by a federal jury on July 20, 2016 of 10 misdemeanor counts of fraud in connection with distributing adulterated and misbranded medical devices in interstate commerce. The jury acquitted them of 14 felony counts of fraud.
  • On July 13, 2016, the DOJ announced that Evercare Hospice and Palliative Care (Evercare) agreed to pay $18 million to resolve FCA allegations that it claimed Medicare reimbursement for hospice care for patients who were not terminally ill: The DOJ alleged that the Minnesota-based hospice provider (now known as Optum Palliative and Hospice Care) knowingly submitted false claims to Medicare for hospice care from January 1, 2007 through December 31, 2013 for Medicare patients who were not eligible for the Medicare hospice benefits because Evercare’s medical records did not support that the patients were terminally ill. Evercare did not admit liability as part of the settlement. Qui tam whistleblower award not yet determined.
  • On June 30, 2016, the DOJ announced that a Florida cardiologist and his practice The Institute of Cardiovascular Excellence (ICE) agreed to pay an aggregate of $8 million to resolve claims that they violated the FCA by filing false claims with government-funded healthcare programs for medically unnecessary procedures and providing illegal kickbacks to patients: The DOJ said that the cardiologist and ICE agreed to pay $8 million (consisting of a $2 million penalty plus release of claims to $5.3 million in suspended Medicare funds) to resolve claims that they violated the FCA by improperly billing Medicare, Medicaid and TRICARE for medically unnecessary procedures, and paying kickbacks to patients by waiving Medicare co-payments irrespective of financial hardship. The cardiologist also agreed to a three-year period of exclusion from participating in any federal healthcare program followed by a three-year Integrity Agreement with the Depart of Health and Human Services Office of the Inspector General (HHS-OIG). Qui tam whistleblowers will split the award of $1.3 million.

See here to read the Ninth Circuit’s 8/10/16 opinion in United States ex rel. Swoben v. United Healthcare Insurance Company et al.

See here to read the District of Massachusetts’ 7/11/16 opinion in United States ex rel. Willette v. University of Massachusetts.

See here to read the DOJ’s “Civil Monetary Penalties Inflation Adjustment,” published in the Federal Register on 6/30/16.

See here to read the DOJ’s 7/28/16 press release entitled “South Carolina Hospital to Pay $17 Million to Resolve False Claims Act and Stark Law Allegations.”

See here to read the DOJ’s 7/22/16 press release entitled “Medical Device Manufacturer Acclarent Inc. to Pay $18 Million to Settle False Claims Act Allegations.”

See here to read the DOJ’s 7/13/16 press release entitled “Minnesota-Based Hospice Provider to Pay $18 Million for Alleged False Claims to Medicare for Patients Who Were Not Terminally Ill.”

See here to read the DOJ’s 6/30/16 press release entitled “Florida Cardiologist and His Practice Pay Millions and Agree to Three Years of Exclusion to Resolve Alleged False Billings for Unnecessary Procedures and Illegal Kickbacks.”

Antitrust Corner: Can Antitrust Prevent Excessive Drug Price Increases?

By Lisl Dunlop, Partner, Antitrust and Competition

The antitrust agencies are often asked to intervene in markets where pricing appears to be excessive to help protect consumers and stabilize markets. In the drug arena, healthcare providers, consumers and politicians have been extremely vocal in criticizing some companies, such as Mylan, Valeant and Turing, for price-gouging, and politicians have publicly called on the Federal Trade Commission (FTC) to investigate and take action against these companies. But at best, antitrust provides an incomplete response to drug pricing, forcing enforcers and private plaintiffs to be creative in the actions they bring.

Notable Price Increases

Valeant’s and Turing’s drugs are older compounds that are off-patent and had been on the market for several years prior to their acquisition. Following Valeant’s acquisition of Nitropress (for dangerously high blood pressure) and Isuprel (for the treatment of heart rhythm problems), Valeant increased its prices by three times and six times, respectively. Turing raised the price of Daraprim (used to treat toxoplasmosis and a key antibiotic used in treating HIV/AIDS) even more dramatically, with increases of over 5,000%. In both cases, the markets for these drugs, sold primarily to hospitals, were too small to attract generic entry. Valeant and Turing apparently targeted these niche monopoly products as able to bear considerable price increases without losing sales volume.

The situation with Mylan’s Epipen is somewhat different. Mylan acquired the EpiPen business in 2007, many years after the product came to market. The importance of the EpiPen is well-documented: Many adults and children rely on the product to manage life-threatening allergic reactions, and demand is magnified by the short shelf-life of the product. Outrage erupted after Mylan increased the price for an EpiPen two-pack from $100 in 2001 to $500-$600 in 2016, while manufacturing costs have apparently been stable.

Although off-patent and a considerable money-maker, generic entry for a competing auto-injector has been slow to emerge. Sanofi-Aventis’s competing epinephrine injector, Auvi-Q, was recalled in October 2015 for potential failures in delivering an accurate dose. A competing product from Amedra Pharmaceuticals, Adrenaclick, is not covered by many insurers. Teva has been developing a generic version of the EpiPen but failed to gain FDA approval earlier in 2016. This has left the playing field open for Mylan to continue to raise prices. In fact, it is likely that the imminence of generic entry has prompted the price increases, as Mylan seeks to optimize its sales dollars before its monopoly is eroded.

The Limits of Antitrust

The antitrust laws are designed to protect competition for the benefit of consumers. The theory is that competitive rivalry between firms leads to better outcomes for consumers in the form of lower prices, higher quality, more innovation and greater product diversity. There are several specific laws for combating anticompetitive activity, including prohibitions against restrictive agreements (notably price-fixing or bid-rigging cartels involving direct competitors), monopolization, and anticompetitive mergers. These laws can be difficult to apply in the drug-pricing context.

First, when drug-makers unilaterally impose price increases, per se prohibitions against anticompetitive agreements between competitors do not apply. Vertical agreements—those between manufacturers and customers—also have the potential to violate the antitrust laws, particularly where the manufacturer has market power, but these arrangements are usually assessed under the “rule of reason” standard, which requires proof of anticompetitive effects. This means that for an antitrust violation competition actually must be harmed, not necessarily consumers. Under current U.S. jurisprudence and agency practice, merely raising prices to take advantage of a monopoly that was legally acquired (whether through the patent laws or normal conduct of business) is not anticompetitive. Price increases may not affect the competitive process, because there is so little competition in the first place.

Monopolization also is a poor vehicle for enforcement in this context. Section 2 of the Sherman Act makes it illegal for a company to acquire or maintain a monopoly through improper means. The party must possess monopoly power in the relevant market and engage in the willful acquisition or maintenance of that power, as distinguished from growth or development as a consequence of a superior product, business acumen or historical accident. Taking advantage of a monopoly to raise prices is precisely what economics would indicate a monopolist should do and not the type of exclusionary act that would offend the antitrust laws.

Actions Underway

The New York Attorney General has taken an interesting angle to bring Mylan’s actions under the antitrust laws by investigating contracts that Mylan made schools sign as part of a program to provide discounted medication—the EpiPen4Schools program. Apparently, Mylan requires schools participating in the program to sign a contract agreeing not to purchase competitors’ epinephrine injectors for a year. If true, such a requirement could meet the elements for a claim of anticompetitive agreement and monopolization by effectively excluding rivals from the market for the sale of epinephrine auto-injectors to schools. Such an action, however, would not bring relief to the millions of consumers who purchase EpiPens outside the schools program.

The West Virginia Attorney General (AG) has taken another tack, opening an investigation of Mylan’s 2012 patent settlement with Teva, which prevented Teva from introducing its generic version of the EpiPen until 2015. Such an agreement could be a violation of the antitrust laws as a “pay for delay” settlement, although the claim will be complicated by Teva’s ultimate failure to win FDA approval to market its generic. (Click here to see our Antitrust Corner article concerning such settlements.) The AG also is investigating potential Medicaid fraud relating to rebates paid under the state’s Medicaid program.

Other actions have challenged Mylan’s practices under consumer protection laws, rather than the antitrust laws. A recently filed Michigan class action claims that, in selling EpiPens only in packs of two, Mylan made misstatements as to the need for two, omitted material information and engaged in deceptive and unconscionable acts in requiring consumers to purchase EpiPens in two-packs. Another class action filed in Ohio alleges that the price increases violate state consumer protection laws because “Defendant has a legal duty and obligation to set a fair, affordable, and reasonable [price] and not hold consumers hostage by forcing them to pay exorbitant prices for its medically necessary product.” It remains to be seen whether such claims survive judicial scrutiny. Given that exorbitant pricing has never been an offense in the past, and the benefits of and medical need for two EpiPens are well documented, Mylan’s defenses in these actions seem strong.

What Next?

Even assuming the New York Attorney General is successful in bringing Mylan to account for exclusionary conduct in the schools market, such an action is at best a limited solution to the situation and is unlikely to lead to broader price cuts. The consumer actions also seem to be a stretch, and it is unclear how long such actions will survive.

The more realistic solution likely lies in the legislature and policy realm, and in particular in the hands of the Food and Drug Administration (FDA), rather than the FTC. Several commentators have called for a reexamination of drug approval standards and potential legislative amendments to further fast-track the entry of generic competitors. Others have pointed to consumer-directed measures, such as transparency in the provision of pricing information. Whatever the approach, with prescription drug spending rising by over 7% a year, this issue will remain on the agenda.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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