On November 1, 2022, the Centers for Medicare & Medicaid Services (CMS) issued two important final rules: one that included updates and policy changes for Medicare payments under the Physician Fee Schedule (PFS) and aspects of Medicare Part B, and the other that finalized Medicare payment rates for hospital outpatient and ambulatory surgical center (ASC) services.

Hospital Outpatient Prospective Payment System (OPPS) and ASC Payment System Final Rule

CMS has indicated that in addition to setting payment rates, the final rule is intended to “align with several key goals of the Administration, including addressing the health equity gap, fighting the COVID-19 Public Health Emergency (PHE), encouraging transparency in the health system and promoting safe, effective, and patient-centered care.”

Although not fully inclusive, the following is a brief summary of some significant items addressed in the final rule:

  • Rate Increases – CMS has implemented a 3.8% increase to Medicare hospital OPPS rates for hospitals that meet applicable quality reporting requirements. This is a significant increase from the 2.7% increase included in the proposed rule.
  • 340B Program – CMS has established reimbursement for drugs and biologicals acquired through the 340B program at the average sale price plus 6%. This decision is consistent with the Supreme Court’s recent decision in American Hospital Association v. Becerra. CMS did not address the remedy for 340B drug payments for the years 2018-2022, which were the focus of the Becerra decision, but indicated it will do so in future rulemaking prior to the CY 2024 OPPS/ASC proposed rule.
  • Rural Emergency Hospitals – CMS has established a new provider type known as the Rural Emergency Hospital (REH). Qualifying critical access hospitals and small rural hospitals will be able to convert to REHs and Medicare payments beginning January 1, 2023. REHs will be eligible for additional facility payments in the amount of $272,866 monthly.
  • Exemption to Site-Neutral Clinic Visit Cuts – In 2019, CMS instituted a policy to pay for hospital outpatient clinic services furnished at grandfathered off-campus provider-based departments at a rate of 40% of the OPPS. For 2023, CMS has exempted rural small community hospitals from its earlier policy of site-neutral clinic visit cuts. For these facilities, CMS will pay the full OPPS payment rate.
  • Telehealth Services – During the COVID-19 PHE, CMS allowed hospitals to provide and bill for remote telehealth behavioral health services. The new rule allows these remote services to continue to be provided beyond the expiration of the PHE. In a change from the proposed rule, CMS will allow these remote services to be provided without the physician’s physical presence in the hospital. CMS will also allow these services to be provided by way of audio-only communications. The rule provides additional requirements for intermittent in-person services. However, those requirements can be waived if the patient and physician agree, and document in the chart, that the risks of in-person services outweigh its benefits, and the patient has a regular source of general medical care.

CMS has published a Fact Sheet on its website providing additional details regarding the above items and many of the other changes found in the Medicare Hospital OPPS and ASC Final Rule.

Physician Fee Schedule Final Rule

CMS has identified the goal of its 2023 PFS final rule as reflecting “a broader Administration-wide strategy to create a more equitable health care system that results in better accessibility, quality, affordability, and innovation.”

While the final rule covers an expansive list of topics, the following is a list of some highlights:

  • CY 2023 Conversion Factor – With the expiration of the 3% supplemental increase to PFS payments for CY 2022, and the budget neutrality requirements for Medicare spending, the CY 2023 PFS conversion factor will be $33.06, a decrease of $1.55 from the CY 2022 PFS conversion factor of $34.61.
  • Evaluation and Management (E/M) Visits – CMS adopted most of the AMA CPT Editorial Panel changes to E/M visit codes and guidelines, effective January 1, 2023, which are intended to reduce administrative burden.
  • Split (or Shared) E/M Visits – CMS finalized its policy for addressing how to bill for a shared visit by defining the “substantive portion” of the service as more than half of the total time dedicated to one or more of the following elements: (1) history; (2) performing a physical exam; (3) medical decision making; (4) spending time (more than half of the total time). This choice will be permitted until CY 2024.
  • Telehealth Services – CMS has extended the temporarily available telehealth services permitted because of the PHE at least through CY 2023, in order to allow additional time for the collection of data. Several other updates were also implemented for telehealth services for CY2023.
  • Behavioral Health Services – A new exception was added to the direct supervision requirement for “incident to” allowing behavioral health services to be provided under general supervision of a physician or non-physician practitioner when such services are provided by auxiliary personnel.

CMS has published a Fact Sheet on its website providing additional details regarding the above items and many of the other changes found in the Medicare PFS Final Rule.

In recognition of National Cybersecurity Awareness Month, the Office of Civil Rights (OCR) issued its October 2022 Cybersecurity Newsletter addressing best practices and tips for compliance with HIPAA’s Security Rule. The Newsletter discussed the ever-increasing need for members of the healthcare industry to be vigilant in their practices, as research shows a 42% increase in cyber-attacks in the first half of 2022 compared to 2021, and a 69% increase in cyber-attacks targeting the healthcare sector alone. Moreover, OCR reported that in 2021, 74% of the reported breaches involved hacking/IT incidents. As a result, OCR has identified hacking as the greatest threat to the privacy and security of protected health information (PHI) in the healthcare sector.

These statistics underscore the importance of providers ensuring that their HIPAA programs are in full compliance with the law. OCR notes the significance of entities ensuring they have sufficient plans in place to: (1) identify security incidents; (2) respond to security incidents; (3) mitigate harmful effects of security incidents; and (4) document security incidents and their outcomes in compliance with the HIPAA Security Rules. The Newsletter provides helpful summaries of key items to keep in mind when planning to address each of these key tasks.

Moreover, the OCR underscores the importance of forming a security incident response team prior to the identification of a potential cybersecurity incident or breach. Having a trained and organized team is critical to ensure that when an incident does occur, as is almost certain in any organization, the team is prepared to take action with an appropriate and timely response.

When forming a security incident response team, factors that should be considered in identifying a well-rounded group include sufficient expertise, those with sufficient lines of communication to key individuals, ensuring key internal groups are represented (i.e., management, IT, legal, public affairs, etc.), and identifying key services that the team will need to provide as part of their duties.

The value of a well-prepared security incident response protocol is best summed up in the Newsletter’s conclusion, which states, “The policies and procedures regulated entities create to prepare for and respond to security incidents can pay dividends in the long run with faster recovery times and reduced compromises of ePHI. A well thought-out, well-tested security incident response plan is integral to ensuring the confidentiality, integrity, and availability of a regulated entity’s ePHI.”

With the pandemic, the struggling economy, and so many other issues impacting providers and consuming their daily attention, it is easy to become complacent and/or overlook the constant threats that cyber-attacks pose to the healthcare sector. The OCR’s Newsletter serves as a key reminder of that threat and provides a helpful overview of key areas for providers to review in assessing the sufficiency of their respective HIPAA programs.

In today’s post-Roe world, women living in states where abortion is illegal have begun to search for alternative options when seeking abortion services. Regulatory policies and state laws, which have not previously had to account for these alternatives, are now impacted by the unprecedented means being used to increase access.

At present, more than half of the abortions in the United States are performed using mifepristone and misoprostol (“the abortion pill”) since the Federal and Drug Administration (FDA) approved its use for women taking the pills up to ten weeks following their last menstrual period. When taken together, the pills are 98% effective. Despite their known safety and effectiveness, the FDA’s drug and safety programs, also known as the Risk and Evaluation Mitigation Strategy (REMS) protocols, impose the same dispensing and distributing restrictions typically associated with high-risk drugs.

Before the pandemic, REMS protocols required women to have an in-person consultation with their healthcare provider before receiving the pills. Despite FDA approval for the use and method of medication abortion, many state laws prevent access to the abortion pill with specific regulations and exceptions. Fourteen states criminalize prescribing and dispensing the medication; fifteen states have targeted regulation of abortion providers laws (TRAP). Specifically, the TRAP laws require in-person waiting periods, an ultrasound, in-person counseling, or the clinician to be present with the patient during the ingestion of the abortion pill.

In light of the chilling effect requiring in-person visits had on receiving essential healthcare during the pandemic, the FDA temporarily lifted this requirement. In December 2021, the requirement was permanently lifted. As a result, it opened the market for online telemedicine abortions in states where abortion is legal. Telemedicine is the use of digital technologies to access healthcare services outside of traditional, in-person medical settings. Despite the evolution of telemedicine during the pandemic, and the FDA’s lifting of restrictions, states can continue to restrict abortion services through the TRAP laws which have rendered telemedicine abortions futile.

Less than 25% of the states permit telemedicine and abortion. Because telemedicine services are defined and regulated by states, providers must comply with state definitions of telemedicine. Significantly, some states require that patients have an established relationship with practitioners via initial in-person visits before receiving telemedicine services. Although many states waived this requirement during the public health emergency declared in January 2021, women seeking telemedicine abortion could not access care during that time because many did not have an established provider relationship.

As a result, this highlighted another area of concern for providers offering telemedicine abortion across state lines. In general, because providers must be licensed in the state where the patient is located and the laws of that state govern, some state laws require patients to verify, and even authenticate, their location to prevent providers from criminal or civil liability in states that prohibit abortion or have “aiding and abetting” laws.

While telemedicine abortion has been identified as a safe and effective option for women seeking medication abortion, providers are limited in their ability to offer FDA-approved services without adequate legal protections. To continue telemedicine abortion without fear of legal and professional ramifications, state legislatures and attorneys general in states such as Massachusetts, Delaware, New York, New Jersey, and Connecticut have enacted shield laws to protect providers providing abortion care to patients living in states where it is restricted.

It is possible that regulatory policies and laws focusing on increasing access to telemedicine abortion may significantly shape the future of reproductive healthcare.

The facts of In the Matter of Jitan are rather startling, but this opinion by the Superior Court of New Jersey Appellate Division, decided on October 13, 2022, provides a reminder of the exceedingly deferential standard of judicial review of professional disciplinary decisions and the broad discretion permitted to the licensing boards in determining appropriate sanctions. It also provides an unstated punctuation mark in the evolution of grounds for licensure action that were enacted on May 11, 2021.

The Attorney General filed an administrative complaint with the Board of Medical Examiners seeking revocation or suspension of the respondent physician’s license after he had been convicted of a criminal offense in February 2020. The physician, a nuclear cardiologist, was arrested and charged with multiple counts of sexual assault, criminal sexual contact, and invasion of privacy arising out of an approximate five-year practice of obtaining pictures of his daughter without her knowledge or consent using cameras placed in her bedroom and bathroom. These photographs depicted the full nudity of the girl as well as images of her “intimate parts.”  Jitan eventually pled guilty to the invasion of privacy provisions of N.J.S.A. 2C:14-9(b), a crime of the third degree.  He was sentenced to two years of probation and a mental health evaluation.

The Board complaint alleged the commission of “a crime of moral turpitude” in violation of N.J.S.A. 45:1-21(f).  The text of that statutory provision authorizes suspension or revocation of a license where an individual “[h]as been convicted of, or engaged in acts constituting, any crime or offense involving moral turpitude or relating adversely to the activity regulated by the board.” The respondent physician did not contest the factual assertions and admitted liability but offered evidence in mitigation of penalty.  In addition to providing information concerning a 39-year career without any disciplinary actions, letters of support from character witnesses and hospitals, and a mental health evaluation, Jitan attempted to justify his conduct with an explanation that he was concerned that his daughter was smoking marijuana at home, and he wanted to obtain evidence of that behavior with this being “a limited lapse in judgment.” Given the time span and volume of photographic images obtained, the Board rejected this position along with its observation that as a physician he could have used more clinical methods of detecting and monitoring alcohol or drug usage.

With its final agency decision, the Board suspended Jitan’s license for eight years. The physician appealed. He argued that because his conduct had only involved a “personal matter,” the eight-year suspension was “shockingly inconsistent with fairness.” The Appellate Division found his contentions to be insufficient to merit extended discussion in a written opinion but nonetheless added comments while affirming the Board’s action.

It started with the usual recitation regarding the limited review of administrative agency determinations. The court declined to second-guess or substitute its judgment for that of the regulators. It emphasized that review of an agency’s choice of sanctions would be modified only when necessary to bring the agency’s action into conformity with its statutory authority. Referring to the Supreme Court precedents of In re Zahl and In re Polk’s License, it recited the oft-repeated refrain that the test was whether the punishment was “so disproportionate to the offense, in light of all the circumstances, as to be shocking to one’s sense of fairness.” Cases meeting this test are as rare as hen’s teeth.

It concluded that the Board’s imposition of the eight-year suspension was warranted by the commission of this “‘egregious’ crime of moral turpitude” with the misconduct raising questions about this physician’s ability to safely interact with patients in the future.

The scope of a crime of moral turpitude has long been a matter of problematic analysis. In connection with an offense of conspiracy to convert pension funds, the Supreme Court of New Jersey observed in In re Fanelli that the legislative history of the statute did not define moral turpitude. It quoted at length from State Bd. of Medical Examiners v. Weiner, where the Appellate Division had stated:

What is ‘moral turpitude’? It has been defined as an ‘act of baseness, vileness, or depravity in the private and social duties which a man owes to his fellow men, to society in general, contrary to the accepted and customary rule of right and duty between man and man,’ … and as, ‘in its legal sense * * * everything done contrary to justice, honesty, modesty, or good morals.’ … The United States Supreme Court, in connection with alien deportation proceedings, has held that, in addition to ‘crimes * * * of the gravest character,’ any crime in which fraud is an ingredient involves moral turpitude. … But the attempt to apply these definitions to specific criminal acts, especially in the context of license revocation proceedings, has demonstrated only the elasticity of the phrase and its necessarily adaptive character, reflective at all times of the common moral sense prevailing throughout the community.

The Supreme Court noted the variety of manifestations of “moral turpitude” reflected in the case law. It held that Fanelli was entitled to a hearing on whether his conduct constituted “moral turpitude” and that the burden of proving the elements of moral turpitude was on the Board. It also addressed the second aspect of the statute providing for discipline where the offense related adversely to the practice of medicine. It concluded that the conduct need not have occurred during the rendering of professional services and that the practice of medicine involves more than patient care but also encompasses record keeping, billing practices, and how physicians treat their employees. It emphasized that Fanelli should have the opportunity to show that his unlawful actions were unrelated to the practice of medicine.

It is no longer necessary to deal with the vagueness and vagaries of what constitutes “moral turpitude” in the context of license revocation or suspension proceedings. The provisions of N.J.S.A. 45:1-21(f) were amended by P.L. 2021, chapter 81. The Appellate Division opinion includes no reference to or recognition of the modification of the statutory grounds for action.

The bill containing the amendments also included a new section codified as N.J.S.A. 45:1-21.5 that deals with rehabilitation of persons who had been convicted of an offense and setting forth notice and hearing requirements. The legislative history explicitly deletes “moral turpitude” as a standard for license denial, suspension or revocation. Amended subsection (f) now reads that disciplinary action may be taken when a person:

[h]as been convicted of, or engaged in acts constituting, any crime or offense that has a direct or substantial relationship to the activity regulated by the board or is of a nature such that certification, registration or licensure of the person would be inconsistent with the public’s health, safety, or welfare, provided that the board shall make this determination in a manner consistent with [N.J.S.A. 45:1-21.5].

The provisions of N.J.S.A. 45:1-21.5 set forth standards for making the new determination:

  • the nature and seriousness of the crime or offense and the passage of time since its commission;
  • the relationship of the crime or offense to the purposes of regulating the profession or occupation regulated by the entity;
  • any evidence of rehabilitation of the person in the period of time following the prior conviction that may be made available to the entity; and
  • the relationship of the crime or offense to the ability, capacity, and fitness required to perform the duties and discharge the responsibilities of the profession or occupation regulated by the entity.

There are no published cases yet on determining a “direct” or “substantial” relationship to the professional practice activity regulated by the licensing board or what would be “inconsistent with the public’s health, safety, or welfare.” Those determinations undoubtedly will continue to be subjected to judicial review on a limited and deferential basis.

In the 100 days since Dobbs v. Jackson Women’s Health Organization was decided, the abortion bans that have gone into effect in more than a dozen states have resulted in nearly 30 million women of reproductive age now living in a state where abortion services are banned.  In response, the federal government has continued its efforts to find ways to respond to the situation.

On October 4, 2022, the U.S. Department of Health and Human Services (HHS), through the Office of Population Affairs, issued over $6 million in grants for reproductive health and research. The funding is intended to improve healthcare service delivery, promote adoption of healthy behaviors, and reduce existing health disparities that doctors, lawmakers, and White House officials have identified following the Supreme Court’s decision overturning Roe v. Wade. This is among many actions taken by HHS to ensure reproductive health services for those 30 million women who cannot access abortion care or have limited access to contraception. It also considers the doctors and nurses who face criminal penalties if they provide abortions.

These actions include grants for Title X Family Planning Research, Research-to-Practice Centers, and Teenage Pregnancy Prevention Evaluation and Research to conduct analyses that will generate information to protect and expand access to reproductive healthcare. Title X Family Planning Research grants will conduct analyses to generate information that will improve the delivery of family planning services while also expanding equitable access to sexual and reproductive health services offered under Title X of the Public Health Service Act. Geared towards adolescents, the Research-to-Practice Center grants will synthesize and translate existing research to improve adolescent health with the goal of reducing teen pregnancy. Similarly, the Teenage Pregnancy Prevention Research projects will explore new questions in teen pregnancy prevention, along with those in adolescent sexual and reproductive health, to improve the efficiency, effectiveness, and quality of these programs while also reducing existing disparities. Concisely stated, the goal for these research and analyses grants is to generate information that will:

  • Identify factors that will improve the quality, access, and equity of teen pregnancy prevention programs for adolescents or young adults, or will reduce existing disparities;
  • Identify and/or validate core program components or “active ingredients” that are essential for teen pregnancy prevention programs and practices to produce the desired outcomes; and
  • Conduct testing of emerging adolescent sexual health innovations to generate early data and prepare for future rigorous impact evaluation.

Similar actions taken by HHS have been seen through the guidance issued to hospitals and physicians reminding them of their continued obligations under the Emergency Medical Treatment and Active Labor Act (EMTALA), along with guidance issued to clarify protections of birth control coverage under the Affordable Care Act (ACA) that requires most private health plans to provide birth control and family planning counseling at no addition charge. Additionally, HHS issued letters to U.S. governors inviting them to apply for Medicaid 1115 waivers to allow women from states where reproductive rights have been restricted to access care. Lastly, HHS issued a proposed rule strengthening regulations interpreting provisions of the ACA reinforcing that discrimination on the basis of sex includes pregnancy and related conditions.

In the end, these grants seek to provide valuable insight to help communities provide essential, client-centered reproductive healthcare services throughout the country and also expand equitable healthcare by reducing existing disparities.

California Governor Gavin Newsom has signed into law a controversial bill, AB 2098, giving the Medical Board of California and the Osteopathic Medical Board of California the authority to investigate, challenge and rescind the licenses of California physicians and surgeons who engage in “unprofessional conduct” with regard to disseminating “misinformation or disinformation” related to COVID-19.

The bill stems from a House resolution of the California State Assembly which declared “health misinformation” to be a “public health crisis” and noted that “[m]ajor news outlets have reported that some of the most dangerous propagators of inaccurate information regarding the COVID-19 vaccines are licensed health care professionals.”

AB 2098 amends California’s Business and Professions Code to include in the preexisting definition of unprofessional conduct the “disseminat[ion] of misinformation or disinformation related to COVID-19, including false or misleading information regarding the nature and risks of the virus; its prevention and treatment; and the development, safety and effectiveness or COVID-19 vaccines.” Notably, disinformation is defined as misinformation that is deliberately disseminated with “malicious intent” or an “intent to mislead,” while misinformation is defined as false information that is “contradicted by contemporary scientific consensus contrary to the standard of care.”

The latter definition has raised the most controversy, as organizations representing physicians and surgeons have pointed out that “contemporary scientific consensus” is often subject to debate and change. Dissenting groups have noted that scientific guidance with regard to COVID-19 treatment, prevention, and vaccination changed multiple times over the past two years and have queried whether doctors providing the current “consensus” would be liable for misinformation once the consensus changes yet again. The drafters of the law have stated that this is not the practical intention, but concern still lingers as the implementation of the definition of “misinformation” has yet to be vetted.

Other dissenters have claimed that any restriction on physician speech regarding COVID-19 is solely politically based and a violation of the medical professionals’ right to free speech. Proponents of the law, however, have noted that medical advice of any kind is professional speech that should be monitored and regulated by the appropriate medical boards for the health and safety of society.

Despite the scrutiny it faced, AB 2098 is now the first law of its kind in the United States and is likely to raise further controversy when it is initially invoked by the medical boards. It remains to be seen whether other states will pursue statutory measures to protect citizens from COVID-19 “misinformation and disinformation” as the virus continues to be ever-present and resistance to vaccinations and boosters becomes more common.

More than a year has passed since U.S. Attorney General Merrick B. Garland established the COVID-19 Fraud Enforcement Task Force to utilize the resources of the U.S. Department of Justice (DOJ) and partner with various governmental agencies to combat COVID-19-related fraud. Since that time, the DOJ has touted its enforcement efforts in both the civil and criminal arenas, having criminally charged 1500 people (with 450 people convicted thus far) and opening civil investigations into more than 1800 individuals and entities. Additionally, the DOJ has seized $1.2 billion in relief funds.

In many cases, these DOJ investigations and prosecutions are not limited to the misuse of Paycheck Protection Program (PPP) loans and PPP loan fraud schemes but are also aimed at deterring and holding individuals accountable for healthcare-related COVID-19 fraud more generally. By all indications, recent enforcement actions indicate no slowdown in sight.

For example, on August 29, 2022, in the Middle District of Florida, a convicted felon pled guilty to a host of charges, including wire fraud and bank fraud, for his involvement in a $2.6 million COVID-related fraud scheme. The convicted felon had submitted false and fraudulent applications for various loans, including one for a PPP loan. The loan applications he submitted not only included numerous false representations related to his criminal history and number of employees, but also allegedly presented a fake commercial lease to obtain the loan. Moreover, he used the personally identifiable information, such as name, date of birth, driver license information and Social Security numbers, of people purported to work for him to submit fraudulent payroll and tax documents. The convicted felon’s fraudulent scheme led the private lender and Small Business Administration (SBA) to approve the loan and resulted in the deposit of approximately $2,617,447, which was then used to purchase residences, a boat, an engagement ring, stocks, and ammunition, all of which has now been forfeited to the federal government.

With regard to recent civil enforcement actions, the DOJ has been consistently alleging PPP fraud under the False Claims Act (FCA). In both civil and criminal enforcement actions, the main target has usually been borrowers engaged in PPP loan fraud. However, in a recent case out of Texas, the DOJ targeted the lender. In that case, a regional bank approved and processed a PPP loan despite the bank’s employees’ knowledge of a PPP loan applicant’s ineligibility to apply for the same. The bank agreed to pay $18,673.50 to “resolve allegations it improperly processed a PPP loan on behalf of an ineligible customer,” thereby making this the first FCA settlement with a PPP lender. This case demonstrates that witting or unwitting borrowers of PPP loans are not the only focus of the federal government – lenders and the extent of their knowledge as to the truth or falsity of these PPP applications are potential targets as well.

Most recently, on September 14, 2022, the DOJ announced the formation of three Strike Force teams to further bolster the DOJ’s ongoing efforts to address COVID-19 related fraud. As a show of force and coordinated effort, the Strike Force is comprised of several agencies, including the FBI, the Department of Labor Office of Inspector General, the Small Business Administration Office of Inspector General, the Department of Homeland Security Office of Inspector General, and Internal Revenue Service Criminal Investigations, thereby bringing combined fraud, cybercrime, and money laundering expertise to bear in enforcement efforts. The Strike Force teams will primarily operate in large cities including Los Angeles, Sacramento, Miami, and Baltimore. Attorney General Garland explained that the Strike Force Teams will “build on the Department’s historic enforcement efforts to deter, detect, and disrupt pandemic fraud wherever it occurs.”

As we have cautioned previously, it may become challenging for the government to discern between borrowers that intended and affirmatively acted to commit fraud and those that were well-intentioned but nonetheless failed to comply with this fast-tracked federal relief program. As a result, many unwitting borrowers or participants – and now even knowledgeable lenders – may find themselves caught in the DOJ’s fishnet of fraud charges with potentially severe consequences. It remains critical for business owners who loaned or received PPP funds to immediately review their compliance, mitigate any non-compliance, and address corrective measures and exposure to enforcement with the appropriate government agency.

Moreover, healthcare providers, owners and executives of medical businesses, physicians, and healthcare marketers and manufacturers should carefully track their billing practices, review their internal policies and procedures, train and audit staff, and institute safeguards, if necessary, to ensure COVID-19 relief funds are not being intentionally or negligently misused.

As we reported back in July on this blog, the U.S. Supreme Court earlier this year held that the federal government improperly lowered drug reimbursement payments to certain 340B hospitals that serve low-income communities. Following that decision, the case was remanded back to the lower courts for further proceedings consistent with the Court’s ruling.

On September 28, 2022, the United States District Court for the District of Columbia entered a written decision and order in favor of the hospitals and healthcare organizations who brought the lawsuit. Specifically, they sought a vacatur of the unlawful 340B reimbursement rate for the remainder of 2022 and an injunction to ensure the enforcement of the relief sought.

The Honorable Rudolph Contreras, U.S.D.J. held that the government had no basis upon which to argue that the unlawful 340B drug reimbursement rate should remain in effect for the remainder of 2022. While Judge Contreras held that an injunction was unnecessary, the plaintiffs were successful in obtaining the relief sought with the Court ordering that the unlawful rate be vacated for the remainder of 2022.

Accordingly, for the remainder of 2022, the U.S. Department of Health and Human Services (HHS) will be required to pay full rates of reimbursement to participants in the program. While it remains to be seen exactly how HHS will address the retroactive shortfall in reimbursement and correct the rates for 2023 and beyond, this ruling marks a significant victory for 340B hospitals.

 

For nearly 40 years, federal courts have routinely upheld agency action under the principle of judicial deference established in the seminal case of Chevron U.S.A. v. Natural Resources Defense Council, Inc., which requires courts to uphold an agency’s interpretation of the statute it administers if the statutory language is ambiguous, and the agency’s interpretation is reasonable. Critics have argued that federal judges have been too quick to find an ambiguity in the face of complex and often dense statutory language and rush to defer to an agency’s interpretation, secure in the knowledge that Chevron deference will provide cover for their rulings.

However, this past June the U.S. Supreme Court issued two decisions addressing the outer limits of agency power in American Hospital Association v. Becerra and West Virginia v. Environmental Protection Agency, signaling renewed judicial oversight over agency action.

In AHA v. Becerra, the Court admonished the Department of Health and Human Services (HHS) for improperly lowering drug reimbursement payments to hospitals that serve low-income communities under a program called “340B,” finding that the Medicare statute explicitly and solely permits HHS to set the reimbursement rate for hospitals for certain outpatient prescription drugs that the hospitals provide to Medicare patients using only one of two methods:

  • If HHS conducted a survey of hospitals’ acquisition costs for prescription drugs, then HHS may set the reimbursement at the average of the hospitals’ acquisition costs.
  • If HHS did not conduct a survey, then HHS is required to set reimbursement rates at the average sales price charged by manufacturers for the drugs, i.e., 106% of the drug’s average sales price, and is prohibited from varying reimbursement rates for different groups of hospitals.

Without conducting a survey, in 2018 and 2019, HHS established two separate reimbursement rates, substantially reducing the reimbursement rates for 340B hospitals to 77.5 % of the average sales price for each drug while at the same time maintaining the historical rate of 106% of the average sales price for non-340B hospitals. This resulted in a reduction in the reimbursement rates for 340B hospitals of about $1.6 billion annually. However, the Court held in AHA v. Becerra that because HHS did not conduct a survey of hospitals’ acquisition costs (as required by the express language of the Medicare statute), it acted unlawfully by reducing the reimbursement rates for 340B hospitals.

Further, in West Virginia v. EPA, the Court determined that a Congressional statute, authorizing the EPA to establish emissions caps at a level reflecting “the application of the best system of emission reduction . . . adequately demonstrated,” did not empower EPA to devise carbon emissions caps based on a generation-shifting approach, i.e., by restructuring the nation’s overall mix of electricity generation, to transition from 38% to 27% coal by 2030. By taking this generation-shifting approach, EPA broke from its 50-year history of setting performance standards under the Clean Air Act based on measures that would reduce pollution by causing plants to operate more cleanly.

Applying what is known as the “major questions doctrine,” the Court held that EPA did not have the authority under the language of the Clean Air Act to promulgate regulations that would essentially reconfigure electric energy production nationwide from coal-generated power plants to solar, wind and gas powered plants. Rather, the Court noted, such a dramatic shift in policy is a matter for Congress.

Both decisions are notable particularly because they ignore Chevron and find instead that agency authority is limited by the language and scope of the agency enabling statutes. In AHA v. Becerra, the agency’s power was clearly defined in the Medicare statute and in West Virginia v. EPA, the scope of the extraordinary power claimed by EPA for itself was not granted by Congress in any textual provision of the Clean Air Act. The upshot of these decisions is that federal agencies must be circumspect about relying on innocuous statutory language or general “catch all” provisions to justify their actions where such language or provisions do not (and were never intended to) authorize agency action.

Hospitals should vigilantly monitor HHS’s regulatory actions which adversely affect Medicare reimbursement to ensure that such actions are supported by clear Congressional authority rather than simply by an exploitive interpretation which aggrandizes HHS’s own power.

Noncompete agreements and restrictive covenants have increasingly become the subject of scrutiny, and within the healthcare sector the use of these agreements remains both highly controversial and highly litigated. Greenbaum attorneys Jessica M. Carroll and John Zen Jackson analyze these issues, including related activity on the legislative front and the potential impact of federal antitrust law, in the article “Physician Noncompetes May Get Federal Antitrust Treatment,” published by Law360 on September 20, 2022.  Read their analysis here.