One year ago – in early 2020 – most of us did not know what COVID-19 meant (co-Corona; vi-Virus; d-disease; 19 – 2019); had no idea how to “zoom”; did not know what social distance meant; and, were largely unfamiliar with working from home on a normal weekday and certainly not week after week and month after month.
The health care delivery system has had to react as well – and is still doing so! Institutional and individual providers have demonstrated to all they are the true HEROES of this pandemic. And their work is not done, even as the roll-out of vaccines continues to increase in numbers and extend beyond health care providers and the ‘elderly’.
So what will happen in 2021 to the health care delivery system? Just as members of Saul Ewing Arnstein & Lehr LLP and our Health Care Practice have done in years past, we have made some predictions of what we expect to see for the balance of the calendar year.
Once you review, feel free to reach out to the author(s) of the respective section with your thoughts and predictions – and also let us know what you think we missed or overlooked!
Here is to a healthy 2021 for all, and continued success and adaptation for every entity and individual involved in delivering health care!
Growth of Telehealth
Author: Samantha Gross
As previewed in Saul Ewing Arnstein & Lehr’s article anticipating key health care legal and business issues in the post-COVID-19 world, we will continue to see growth in the telehealth space. The U.S. Department of Health and Human Services (“HHS”) has substantially expanded the scope of services reimbursed under Medicare when furnished using telehealth during the pandemic and taken other actions to ease access to telehealth. HHS reports that in April 2020, nearly half (43.5 percent) of Medicare primary care visits were provided through telehealth compared to less than one percent (0.1 percent) in February 2020, before the public health emergency.
Since the onset of the pandemic, the Centers for Medicare and Medicaid Services (“CMS”) have expanded coverage and reimbursement for telehealth services. Most recently, on December 1, CMS issued the 2021 Medicare physician fee schedule final rule and interim final rule, which include changes to Medicare Part B telehealth payment policy. The final rule adds more than sixty (60) services to the Medicare telehealth list, meaning those services will be covered even after the COVID-19 pandemic ends. In addition, CMS has expanded the pool of practitioners who can bill for telehealth services to include licensed clinical social workers, clinical psychologists, physical therapists, occupational therapists, and speech-language pathologists, all of whom can furnish brief online assessment and management services as well as virtual check-ins and remote evaluation services. Finally, CMS adopted an interim final policy updating the definition of “direct supervision” to include the virtual presence of the supervising physician or practitioner using interactive audio/video real-time communications technology. Under this interim final policy, direct supervision may be conducted virtually through at least December 31, 2021.
On December 3, 2020, HHS issued an amendment to the Declaration under the Public Readiness and Emergency Preparedness Act (“PREP Act”). The amendment provides immunity from tort liability claims (except for willful misconduct) to health care personnel using telehealth to order or administer “covered countermeasures” for patients in a state other than the state where the health care provider is licensed. This allows physicians to treat patients located in states where they are not licensed as long as it is solely for the purpose of combatting COVID-19. Note that this exception does not permit a physician to practice in states where they are not licensed to prevent, diagnose, or treat any condition other than COVID-19.
In 2021, we expect to see the role of telehealth in the provision of medical and mental health care continue to grow. Based on the increase use of telehealth during the pandemic, lawmakers may seek to make permanent certain flexibilities that allowed telehealth to flourish in 2020.
Contemplating Antitrust
Author: Michael Finio
Predictions in the current antitrust, regulatory and legislative environments are hard – there is just too much happening. The better insights might be reached by thinking through what the bigger questions might be — for example, some things to think about as we approach 2021 and contemplate where a new administration in Washington and evolving antitrust enforcement regimes and priorities will take the health care industry...
* Will the FTC continue to pursue health system and hospital mergers and affiliations aggressively, as it did in 2020? Will its loss in the Eastern District of Pennsylvania, regarding the Jefferson-Einstein merger, be upheld on appeal? Or will the “market realities” aspect of market definition cause the FTC to refocus its efforts and analysis?
* What might be the fallout of the multiple attacks on the tech industry at the federal and state level on other industries, like health care, which are trending towards levels of concentration, albeit smaller? What might be the influence of the Biden administration on existing litigation efforts and priorities? Will there be efforts, as rumored, at legislative reforms to the Sherman Act, to get ahead of SCOTUS in an effort to modernize antitrust theory to the digital and online economies?
* Will the subscriber side, $2.67B settlement in the Blue Cross/Blue Shield multi-district litigation be approved by the court in the fall of 2021? What will be the overall impact of the noon-monetary, structural aspects of the settlement on subscribers? Will competition between “Blue Plans” become the norm, and if so, to what end at the subscriber/consumer level of the market? And, will the provider side of that litigation settle, as is rumored, for an even bigger monetary amount, and to what impact? Changes in the insurance industry from these cases are likely — but also…
* What will be the impact of the McCarron-Ferguson repeal statute that was enacted in the final month of the Trump Administration? Will there be a flood of litigation as a result, and, even without litigation, how will that repeal, if at all, change the conduct of health insurers — Blues or otherwise?
* Major changes to the Hart-Scott-Rodino premerger enforcement rules are in the works, currently in the midst of a soon-to-end comment period. The changing rules, designed to increase merger review activity, coupled with probable increases in merger enforcement budgets for the FTC and DOJ, will have broad effects in all markets, and health care is no exception. How the changes play out and actually affect how health care industry participants approach mergers and other affiliations, especially in light of the cases the FTC pursued in 2020, will be closely watched as 2021 proceeds.
COVID-19’s Continued Impact on FDA
Authors: Jonathan Havens and Lauren Farruggia
Undoubtedly, the COVID-19 pandemic has had and will continue to have a profound impact on the U.S. Food and Drug Administration (FDA or the Agency). The Agency published its first statement regarding the novel coronavirus on January 27, 2020 in an attempt to assure the public that FDA was acting quickly “to facilitate the development and availability of investigational medical products to help address this urgent public health situation.” Shortly thereafter, on January 31, 2020, Department of Health and Human Services (HHS) Secretary Alex M. Azar II declared a public health emergency pursuant to his authority under Section 319 of the Public Health Service Act. Nearly one year later, despite industry’s unprecedented push for expanded testing, rapid manufacturing and sourcing of personal protective equipment (PPE), development of investigational therapies, and studying and securing authorization for multiple vaccine candidates, U.S. case numbers continue to climb.
As a result, FDA’s portfolio will continue to be dominated by COVID-19 throughout 2021. Since Secretary Azar declared the public health emergency nearly a year ago, the Agency has relied on its authority under Section 564 of the Federal Food, Drug, and Cosmetic Act (FD&C Act), which permits the FDA Commissioner to allow unapproved medical products or unapproved uses of approved medical products to be used in an emergency to diagnose, treat, or prevent serious or life-threatening diseases or conditions caused by threat agents when there are no adequate, approved, and available alternatives that exist. Under this Emergency Use Authorization (EUA) provision, FDA has permitted the marketing of hundreds of products that have not been subject to ordinary (i.e., non-emergency) premarket review, including face masks, surgical masks, and respirators, as well as PPE and PPE decontaminants, diagnostic and serological (i.e., antibody) tests, ventilators, patient monitoring devices, and, as of December 11 and 18, 2020, two safe and effective COVID-19 vaccines. These products must all satisfy certain criteria in order to receive an EUA, and each authorization letter specifies, in some form, that the “EUA will be effective until the declaration that circumstances exist justifying the authorization of the emergency use of [the product] during the COVID-19 outbreak is terminated.”
While, unfortunately, the public health emergency will not be lifted any time soon, we anticipate that manufacturers of items marketed pursuant to EUA will eventually face the same dilemma: Whether to spend the necessary resources to register their establishments and pay the required registration fee, as well as apply for, and obtain, the requisite premarket clearance or approval required to market their product(s) in non-emergency settings. These expenses will prove difficult for certain firms that were not previously subject to FDA’s jurisdiction but who pivoted their manufacturing operations to assist the public during the early months of the pandemic (e.g., alcohol producers pivoting to making hand sanitizer, although HHS recently clarified that FDA’s newly enacted over-the-counter (OTC) monograph drug facility fees will not apply to those companies that first entered the OTC drug market only to produce hand sanitizer during the COVID-19 public health emergency). Beyond the burdens on industry not used to FDA compliance and related costs, the Agency will also be burdened by a return to non-emergency review of products (e.g., handling an influx of premarket applications).
Throughout 2021, we will continue to monitor FDA’s response to the COVID-19 pandemic, and will evaluate the Agency’s policies post-public health emergency (e.g., how, if at all, will FDA’s approach to review and clearance or approval of medical products change as compared to its approach to the same pre-coronavirus). We encourage those interested in staying abreast of these developments to subscribe to our Regulatory Roundup blog and connect with our practice leadership on LinkedIn and Twitter.
Pay Special Attention to Enforcement Activity for Government Reimbursement Programs
Author: Charles Kelly
History suggests that Democratic administrations take a firm grip of enforcement mechanisms available to the executive branch. In health care that can mean an intensifying focus on government reimbursement programs, such as Medicare and Medicaid. Health care providers and insurers will be well advised to ensure they are complying closely with the letter of federal regulations relating to government-funded reimbursement programs to avoid entanglements with enforcement mainstays such as retrospective fraud audits and False Claims Act cases that seek to curb abuse and waste in the marketplace. Likewise, antitrust enforcement may ramp up as the government seeks to rein in ever-exploding health care costs. In this area, health care clients would be well-served to become familiar with emerging antitrust doctrines scrutinized by government regulators, such as Contracts that Reference Rivals (“CRR”) — a tool available to large entities with market leverage. A CRR is a contract between a buyer and a seller that refers to, and whose terms may depend on, information outside the underlying purpose of the agreement and is designed to undermine or squelch competition in a particular market. This type of antitrust activity arises, for example, when a health care insurer enters an agreement with a health care provider that is subject to economic penalty or termination if the provider enters an agreement with a competing health care insurer.
COVID-19 Testing and the Price to Pay
Author: Patricia Varona Garcia
The Families First Coronavirus Response Act (the FFCRA) was enacted on March 18, 2020. Section 6001 of the FFCRA states that plans and issuers must provide coverage for COVID-19 testing without imposing any cost-sharing requirements (including deductibles, copayments and coinsurance), prior authorization, or other medical management requirements. However, this coverage was broaden by the CARES Act.
The CARES Act was enacted on March 27, 2020 and Section 3201 of the Cares Act amended Section 6001 of the FFCRA to include a broader range of diagnostic items and services. Additionally, Section 3202(a) of the CARES Act provides that a group health plan or a health insurance issuer providing coverage for COVID-19 diagnostic testing shall reimburse the provider of the diagnostic testing as follows:
(1) If the health plan or issuer has a negotiated rate with such provider in effect before the public health emergency declared under Section 319 of the Public Health Service Act (42 U.S.C. 247d), such negotiated rate shall apply throughout the period of such declaration
(2) If the health plan or issuer does not have a negotiated rate with such provider, such plan or issuer shall reimburse the provider in an amount that equals the cash price for such service as listed by the provider on a public internet website, or such plan or issuer may negotiate a rate with such provider for less than such cash price.
In addition, part (b) of Section 3202 of the CARES Act requires test providers to publicize the cash price for COVID-19 diagnostic tests. Each provider of a diagnostic test for COVID-19 shall make public the cash price for such test on a public internet website of such provider. Failure to publicize the cash price may result in the Secretary of Health and Human Services imposing a civil monetary penalty in an amount not to exceed $300 per day that the violation is ongoing.
Furthermore, while the CARES Act is a federal protection, states have stepped in and applied their own laws regulating COVID-19 testing prices. For instance in Illinois, providers are required to submit claims for COVID-19 testing to the patient’s insurer and should not charge any deductibles, co-pays, or cost sharing to the patient. While each state has responded accordingly to their own plan with the growth of COVID-19 and the new strain, we can expect to see more states take an interest in this area. In the next year we can predict to see a growth of states implanting state level regulations and ensuring that each insurer is complying and not overcharging for COVID-19 tests.
Health Care Litigation
Author: David Waxman
Health care litigation in 2021 will begin to answer the various questions created by the statutes enacted and executive orders issued in 2020. Sitting at the top of the list is the soon-to-evolve definition of “gross negligence.”
As the severity of the pandemic’s grip on the delivery of health care became evident, states across the map rushed to protect the well-intended and under-armed providers who were heroically taking on a poorly understood and inadequately respected public health calamity. The mechanism selected to protect the providers was quite often the same – immunity from liability (note – this is not immunity from being sued). As blanket immunity is unworkable (certain acts can never be justified, such as intentional wrongdoing), elected officials grappled with the scope of acts to be protected, and many drew the line where protection ended at “gross negligence,” a finding infrequently made and historically linked to “reckless” conduct.
Thus, judges and juries (when it is determined that juries can operate safely) will be called upon to determine whether a COVID-related death occurred notwithstanding appropriate care, whether it occurred as a result of negligent care, or whether it was the result of reckless care. Only in the latter scenario would the care provider not be immune from an adverse finding of liability and imposition of damages.
Given the significant portion of COVID-related deaths which have occurred in congregate housing, nursing homes may likely be the defendants in the cases which demarcate the new boundaries of gross negligence. Issues such as inadequate staffing, ineffective infection control, insufficient quantities of personal protective equipment, and, most recently, failure to inoculate residents notwithstanding the vaccine being distributed to nursing homes, will all, unfortunately, be highlighted, as the horror of the death toll morphs into new litigation. The defendants in these cases will be called upon to argue that even if these outcomes were unacceptable, they were not the result of reckless conduct. Should that argument fail, nursing homes will find themselves in an unenviable position.
2021 Outlook: The Continued Implication of COVID-19 on Deal Terms
Author: Jourdan Garvey
Much has changed in our world and financial markets since March 2020 and the declaration of the COVID-19 pandemic. While M&A activity initially slowed, both sellers and buyers adapted, leading to a resurgence of M&A activity in the last half of 2020. As the likelihood for strategic M&A activity increases in the health care sector, it is important to remain mindful of the implications COVID-19 may have on the deal terms of M&A transactions in a pandemic era.
Purchase Price Negotiation and Recoupment
The duration of the COVID-19 pandemic and associated uncertainty may lead buyers to ask for specific clauses when negotiating the purchase price of a seller – including a hold back of a certain portion of the purchase price, a favorable purchase price adjustment clause, or means of contingent consideration. As purchase price is typically tied to a seller business’ valuation, a buyer may take this as an opportunity to argue that the seller’s valuation will be, or has been, negatively impacted by the pandemic. Buyers who negotiated these clauses during the onset of the pandemic may seek to enforce these clauses and recoup portions of an agreed upon purchase price, especially in sectors (such as health care-related industries) in which valuations have been hit hard by the pandemic.
Covenants and Closing Conditions
To mitigate risk of a buyer during the negotiation and transition period of an M&A transaction, the buyer may request that a seller incorporate additional interim operating covenants to address implications of COVID-19. These operating covenants may require continuation of “ordinary course” operations, or obligate a seller to provide frequent compliance reporting against changing governmental or agency laws and orders. Sellers are cautioned against agreeing to blanket “ordinary course” covenants, as many actions being taken by health care providers in the current environment are necessitated by the pandemic, and may be, in fact, anything but “ordinary course.” Parties should also strive for clarity regarding a buyer’s “walk rights” from a transaction due to the COVID pandemic – negotiating clear and concise closing conditions/termination rights provide the parties with certainty regarding transactional risk, and the likelihood of a closing occurring.
It is likely that buyers will continue to request that any and all loans received by such seller under the CARES Act are forgiven as a condition to closing of any M&A transaction. Sellers who received assistance in connection with the Paycheck Protection Program under the CARES Act should confirm that the proposed M&A transaction does not interfere with the sellers’ ability to receive and utilize such assistance, and begin the process of applying for forgiveness as early as possible.
Municipal Bond Financing
Author: Josh Pasker
2020 was a busy year for the municipal bond market as interest rates remained at historically low levels. Market professional are predicting that 2021 will continue to see a high volume of deals in the health care and hospital space. Following the elimination of tax-exempt advance refunding’s, a component of the 2017 tax reform legislation, there was a significant increase in the supply of taxable municipal bonds in 2020 that should carryover to 2021 if taxable rates remain low. With the Biden administration there is some hope that tax-exempt advance refundings are revived. In addition to new-money and refunding transactions, as consolidations and mergers become more prevalent in the health care and hospital arena it is imperative that the due diligence process includes an in-depth review of any outstanding bond documents that may exist for the merging/consolidating entities.
HHS-OIG Speaker Program Special Fraud Alert – Day Late, Dollar Short, and Nothing Special
Author: Chris Hall
On November 16, 2020, the Office of Inspector General (“OIG”) of the U.S. Department of Health and Human Services (“HHS”) issued a Special Fraud Alert highlighting the Anti-Kickback Statute (“AKS”) risks for pharmaceutical and medical device companies that pay doctors to speak about their products to other doctors. While a helpful reminder, the government’s guidance largely rehashed lessons already learned from prior prosecutions, case law and Corporate Integrity Agreements. All mature pharmaceutical and medical device companies have – or should have – long since adopted the guardrails the HHS-OIG outlined in the Alert: appropriate locations and audiences; meaningful topics without needless repeats; administration by the sponsor’s medical function, not marketing; and FMV compensation. This should not be new! The congregation has already been converted. Let’s hope the lapses at Purdue Pharma – highlighted in its agreement this year to plead guilty and to dissolve itself – are a “one off.” We are confident the balance of the Life Science industry has been offering speaker programs with fair, balanced, and meaningful curricula taught by appropriately selected and compensated experts. Prediction: no additional prosecutions or whistleblower actions based on speaker programs outside the opioid industry will follow in Purdue Pharma’s wake. The SEA&L White Collar practice believes instead that Life Science industry players with mature and robust compliance functions will weather just fine any allegation that their speaker program has violated the Anti-Kickback Statute and FCA.
HHS’s Big Sprint: HHS Issues Highly Anticipated Final Rules Amending the Anti-Kickback Statute and Stark Law Regulations
Author: Samantha Gross
On November 20, 2020, the Centers for Medicare and Medicaid Services (“CMS”) and the Office of Inspector General (“OIG”) of the U.S. Department of Health and Human Services (“HHS”), each issued final rules revising the Physician Self-Referral Law (commonly referred to as the “Stark Law”), Anti-Kickback Statute (“AKS”), and the Beneficiary Inducements Civil Monetary Penalties (“CMP”) regulations. The final rules are part of HHS’s Regulatory Sprint to Coordinated Care and are designed to provide the health care industry greater flexibility and reduce the regulatory burden associated with the AKS and Stark Law. Below is a high-level overview of some of the key provisions from the final rules.
- Value-Based Arrangements: Both final rules include new exceptions and safe harbors to reduce the potentially chilling impact of these regulations on value-based arrangements. The OIG implemented three new AKS safe harbors designed to protect arrangements entered into with or by a value-based enterprise (VBE). A VBE is broadly defined to capture many arrangements where the participants have agreed to collaborate for value based purposes. Similarly, CMS implemented four new exceptions to the Stark Law for value-based arrangements that apply based on the level of risk assumed by the VBE or the physician.
- Key Stark Law Terminology: CMS’s final rule provides guidance and clarification on fundamental Stark Law terminology including fair market value, commercially reasonable, and the volume or value standard. The final rule establishes objective tests to determine whether compensation passes the “volume or value” and the “other business generated” standards. With regard to the definition of fair market value, CMS adopted three separate definitions of fair market value – one generally applicable definition, one definition for the rental of equipment, and a separate definition applicable to the rental of office space. The general definition provides that fair market value means the value in an arm’s length transaction, consistent with the general market value of the subject transaction.
- Donations of Cybersecurity: The final rules create a new Stark Law exception and AKS safe harbor offering protection for non-monetary donations of cybersecurity technology and related services. The commentary explains that these changes are made to address the growing threat of cyberattacks against the health care industry.
The AKS and Stark Law final regulations went into effect on January 19, 2021 with the exception of a Stark Law amendment related to the definition of a group practice, which will take effect January 1, 2022. These regulations further HHS’ goals to remove potential barriers to more effective coordination and management of patient care and delivery of value-based care.
Information Blocking
Author: Scott Patterson
On April 5, 2021, a wide range of entities in the health care field will become subject to the “information blocking” regulations codified in 45 CFR Part 171 as part of the regulatory framework established by the HHS Office of the National Coordinator for Health Information Technology (“ONC”) to implement the 21st Century CURES Act (“CURES Act”). The CURES Act included a provision prohibiting “information blocking”, with substantial monetary penalties attached, but delegated responsibility for defining exceptions to HHS. Enforcement procedures also remained to be defined. As the requirements become more concrete during 2021 and 2022, and HHS OIG enforcement looms, affected parties – which include not only technology vendors and health information exchanges, but also health care providers – will need to pay even greater attention to their and their business partners’ information blocking practices and regulatory compliance.
“Information blocking” is broadly defined as any “practice that is likely to interfere with, prevent, or materially discourage access, exchange, or use of electronic health information [EHI]”, subject to limited “knowledge” requirements and specified exceptions. (Until May 2, 2022, EHI is limited to certain defined “core data” elements.) A wide range of misconduct may fall within this broad definition. For providers, it could include denying individuals’ requests for electronic record access, charging excessive fees for access, demanding unnecessary patient consents before sharing information for treatment purposes with other providers, keeping patients from viewing information received by the actor from other treating providers, or creating other inappropriate obstacles. For HIEs, it could include excluding classes of legitimate recipients from receiving HIE data, or inappropriately blocking sharing with other HIEs. For vendors, it could include designing applications that make it unreasonably difficult to access or share data, resisting or delaying licensing of interoperability elements, or creating barriers to interoperability or data exchange for anticompetitive purposes. The new ONC rules in Part 171 define carefully limited exceptions based on an actor’s demonstration that its information blocking practices are intended to prevent harm, protect privacy or security, or preserve health IT performance, or that alternatives to those practices are infeasible. The burden will be on the proponent of the information blocking practices to demonstrate that one or more of those exceptions apply to their conduct.
Health care IT vendors, HIEs, and providers should all spend time during 2021 considering and eliminating their practices that could be characterized as unlawful “information blocking”, and realigning their existing contracts and forms as appropriate. Stated more positively, they should accelerate their efforts to enhance data sharing and help patients realize the longstanding goal of achieving more visibility, control and portability with respect to their medical data.
Election 2020 Winner: Cannabis; 2021 Already Off to Active Start in the Space
Authors: Jonathan Havens and Lauren Farruggia
Given public support for cannabis legalization is even higher than we reported last year (currently, sixty-eight percent of Americans support legalization, per Gallup), it is not surprising that state cannabis policy momentum in the U.S. continued to grow in 2020. On November 4, 2020, voters in five states approved ballot measures to authorize medical and/or adult use cannabis programs. Assuming that respective state legislatures act to implement these measures, where required, and the initiatives survive legal challenges, 36 states and the District of Columbia will have medical programs, with 15 of those states also having adult-use (i.e., recreational) programs, as well.
Mississippi and South Dakota approved measures to regulate medical cannabis, and Arizona, Montana, New Jersey, and South Dakota approved measures to regulate adult-use cannabis. South Dakota became the first state to authorize medical and adult-use cannabis simultaneously. Several states, including Arizona and New Jersey, have already begun to consider draft legislation and rulemaking to implement their respective ballot initiatives, meaning adult-use cannabis could be available in these jurisdictions later this year. The timelines in other states, such as Mississippi and South Dakota, are less clear, with program launches likely in 2022.
These state developments make one thing clear: Support for cannabis does not cut across geographic or traditional political lines. Anyone who assumes that only coastal blue states will support cannabis does so at their own peril. Voters in Mississippi, Montana, and South Dakota delivered solid victories for President Trump, but these same voters approved cannabis ballot initiatives by even wider margins. Federal cannabis reform largely stalled in 2020, but given Democratic control of the House of Representatives, the Senate, and the White House, that could change moving forward. In December, the U.S. House of Representatives passed (228-164, mostly, but not entirely, along party lines) the Marijuana Opportunity Reinvestment and Expungement Act (MORE Act) that, if enacted, would end the federal prohibition and criminalization of marijuana by descheduling it from the Federal Controlled Substances Act. Such legislation was not taken up by the Senate, but marked the first time that Congress has ever voted on the issue. With results of the January 6, 2021 Georgia runoff now conclusive (Sens. Raphael Warnock’s and Jon Ossoff’s wins have split the Senate 50-50, with Vice President Kamala Harris serving as the tiebreaker), cannabis reform legislation may receive a warmer reception under the Biden Administration. The prospect of Senate approval of the MORE Act is not clear, given that Democrats are expected to retain the chamber’s filibuster rule, meaning that 60 votes could be required to invoke cloture (i.e., end the filibustering of a bill). Approval of more modest approaches, like that in the Strengthening the Tenth Amendment Through Entrusting States (STATES) Act and/or the Secure And Fair Enforcement (SAFE) Banking Act could be more likely.
Similarly, 2021 could see further progress related to the U.S. Food and Drug Administration’s (FDA or the Agency) regulation of hemp-derived cannabidiol (CBD) in consumer products, but it may be too soon to tell.
On July 22, 2020, FDA sent to the White House Office of Management and Budget (OMB) for review a draft guidance, “Cannabidiol Enforcement Policy.” As the document was still pending review when President Trump left office, it was subject to a regulatory “freeze” instituted by President Biden. Just a day after President Biden was inaugurated, on January 21, 2020, FDA withdrew the enforcement policy; it is not yet clear if/when the Agency will release the policy (and whether it needs to go back to OMB or if FDA could issue it unilaterally), although some have predicted it could be released in the coming weeks. Despite many predictions about what the document might contain – including by the authors – it appears that no one outside of the Agency or OMB has yet seen the guidance.
Also on July 22nd, FDA announced the availability of a draft guidance for industry, “Cannabis and Cannabis-Derived Compounds: Quality Considerations for Clinical Research,” which, as we discussed here, may provide some insight into how the Agency will regulate CBD products in the future. On November 19, 2020, FDA held a public hearing regarding sex and gender differences in CBD use and responses, which made clear that, although the Agency has made some progress in its research and assessment of CBD products across user groups, the Agency still has many unanswered questions about the science, safety, and quality of products containing CBD.
On the enforcement side, on December 17, 2020, the Federal Trade Commission (FTC) took action against six sellers of CBD-containing products for allegedly making a wide range of scientifically unsupported claims about their ability to treat serious health conditions. FDA took similar action on December 22, 2020, issuing five Warning Letters to companies for making similar impermissible, aggressive health claims. These enforcement measures largely mirror FTC and FDA’s prior concerns with unlawfully marketed CBD products that pose the greatest risk of harm to the public.
Although President Biden has yet to name his pick for FDA Commissioner, one potential candidate seems to be Amy Abernethy, M.D., Ph.D., who currently serves as the Agency’s Principal Deputy Commissioner and head of the FDA's CBD Working Group. Assuming President Biden picks Dr. Abernethy, we might expect a continuation of FDA’s deliberate and protracted review of CBD. On the upside, the head of the Agency would already be informed about issues in and around cannabis and CBD, meaning it would take her less time to get up to speed on such issues than it would another candidate. One has to wonder: If federal and state cannabis reform efforts continue, will FDA’s approach to CBD remain the same? With that said, the Agency’s position on CBD has nothing to do with its derivation from hemp, a cannabis varietal, and everything to do with CBD being studied and approved as a drug before it was marketed as an ingredient in foods.
As industry and Congress grow increasingly impatient with FDA related to the Agency’s relative inaction on CBD, we expect a renewed legislative push in 2021 for hemp-derived CBD to be permitted as a dietary ingredient for use in supplements. H.R. 8179 was the legislative vehicle in the 116th Congress; it will need to be reintroduced in the 117th Congress. While Reps. Kurt Schrader (D-Ore.) and Morgan Griffith (R-Va.) will likely reintroduce their legislation early this year, some in Congress might wait to see if FDA’s enforcement policy addresses the legislation’s goals (spoiler alert: it will not, at least not nearly to the same degree as the legislation would). Regarding the bill, it will be interesting to see how much Congress listens to FDA’s “technical comments” related to the same. The Agency’s recent comments on the bill differ greatly from the approach some members of Congress are pursuing.
At any rate, CBD and cannabis remain topics of great interest to stakeholders and the public, and we expect to see more federal and state legislative and regulatory action in 2021. And industry is keeping a close eye on these developments. Cannabis stocks are reacting to changes in Washington, with upward movement on the heels of the Warnock and Ossoff wins. Similarly, M&A activity has been surging, a trend that is expected to continue throughout the year. Our Cannabis Law group is currently representing clients in several notable cannabis industry transactions (acquisitions, go publics, financings, loans, etc.), with new deals coming in each day.
We encourage those interested in staying abreast of the developments in the cannabis law space to subscribe to our Regulatory Roundup blog, sign up for our Cannabis Law e-mail list, and connect with our practice leadership on LinkedIn and Twitter.
Taxes and Tax Reform?
Author: Richard Frazier
With the changing of the guard in the White House as well as the shift in control of the Senate, there will definitely be efforts to increase taxes and other levies. It is no secret that many members of the new administration would like to roll back many provisions of the 2017 Tax Act. However, given the severe impact that the pandemic has had on the healthcare sector, we do not expect there to be any significant additional levies on that sector coming in 2021. While we do not yet know the extent of the additional stimulus package, it is sure to include provisions that enable health care providers to continue to keep their employees on the payroll until the effects of the pandemic have subsided. On the employee side of the equation, we anticipate seeing more direct payments to individuals below a certain income level as well as allowing those payments as well as expanded unemployment payments to be exempt from income tax. Likewise, on the employer side of the equation, any loan amounts forgiven should all be tax exempt, and the employer is most likely going to be able to claim employment tax credits even though amounts they received as forgiven loans were used to make payroll and benefit payments to their employees.
On the litigation front, the Mayo Clinic case is making its way through the Federal Appeals Court for the 8th Circuit, which should render its decision in 2021. Recall that the Mayo Clinic convinced the Federal District Court in Minnesota that its income from real estate partnerships, which are largely debt-financed, is not subject to the unrelated business income tax by virtue of the Mayo Clinic being regarded as an “educational institution” within the meaning of section 170(b)(1)(A)(ii) of the Internal Revenue Code. The decision will have far ranging effects on many large, integrated academic health systems because it would expand their ability to develop and finance real estate using similar techniques.
As we saw in 2020, we should continue to see the struggle to distinguish between an “employee” and an “independent contractor.” With employers not wanting to add to their employee census, the tendency will be to try to classify the “new” workers as independent contractors. As more people are working remotely, the connection between the company and the individual becomes more attenuated, allowing the company to have a stronger argument that the individual is not its employee.
Taxes will never go away, and their applicability will always be an important issue for the health care provider and its workers. Even for those health care providers that think of themselves as “tax-exempt,” there are a multitude of tax and benefit issues that our Health Care Practice can guide them through and help them plan for the future.
Migration of Surgical Procedures From Hospitals to Surgery Centers Will Accelerate in 2021
Author: Joe Ourth
Past years have shown that physicians continue to shift where they perform surgical procedures from the hospital setting to ambulatory surgery centers (ASCs). In a 2020 survey of over 100 health care executives published by Modern Healthcare on January 25, 2021, 67 percent said that their health systems planned to increase ASC investments – up from 44 percent in 2019. In the same article, the St. Louis-based Ascension System said it “plans to double its current footprint over the next two years as it continues to shift from its hospital centric focus.” As is often the case, reimbursement methodology drives dramatic shift in health care delivery. Two major changes effective January 1, 2021, both on the Medicare and private pay side, will drive the continued flight to ASCs.
The new CMS 1312-page final rule, CMS-1736-FC (https://www.cms.gov/files/document/12220-opps-final-rule-cms-1736-fc.pdf), effective January 1, 2021, makes important reimbursement changes. This rule begins a three-year transition period to phase out CMS’s Inpatient Only (IPO) list which had required that 1700 different procedures be performed as inpatient hospital procedures. CMS begins this phase out by removing nearly 300 services, primarily musculoskeletal related, for calendar year 2021.
On the private payor side, BlueCross BlueShield of Illinois, the dominant private payer in Illinois, and an affiliate of Health Care Service Corporate (HCHS) which is one of the largest insurers nationwide, sent notice to providers regarding their new surgical site strategy. Effective January 1, 2021 physicians will receive a 15 percent increase in current professional fee when eligible surgeries are performed in an ASC or office setting and a 15 percent decrease in current reimbursement when eligible surgeries are performed in a hospital setting. We expect the BCBS reimbursement plan, and other similar steps taken and expected to be taken by other insurance companies, will further incentivize physicians to favor the ASC setting and accelerate the shift from hospitals to ASCs for surgical procedures.
HIPAA: Enforcement Activity Will Continue Strong
Author: Bruce Armon
HIPAA enforcement activities continue – on a bipartisan basis – and impacts HIPAA-covered entities and HIPAA business associates alike. The HIPAA Right of Access Initiative which began during the Trump Administration has continued during the Biden Administration. As part of this Initiative, patients are entitled to timely access to their medical records. To date, sixteen (16) settlements have been announced as part of this initiative.
Covered entities and business associates should review their Privacy policies, their Security policies, and their breach notification protocols to ensure continued compliance. Every business arrangement that involves the return or exchange of data should be drafted to ensure sufficient data protections are in place.
Data security will remain paramount. More states may accelerate legislative initiative since the HIPAA protections are a ‘floor’ and not a ‘ceiling’ for data protections. Telehealth initiatives will continue to evolve and present new provider and patient opportunities and security challenges. Large hospital systems and payors will likely continue to aggregate deidentified data for research purposes, public health purposes, and to study quality of care outcomes. Data and data protection will continue to be important hallmarks of a provider’s effective compliance program. Hackers will continue to look to exploit IT weaknesses and ransomware attacks will likely continue to affect participants in the health care delivery system.
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2021 will undoubtedly provide opportunities and challenges for each entity and individual directly and indirectly involved in the health care delivery system.
