FDA Preemption Case Heading to the Supreme Court

A potentially landmark case regarding federal "preemption" of state law claims will be heard by the U.S. Supreme Court in the upcoming term. In November, the Court will hear arguments regarding whether a patient will be allowed to keep the approximately $6 million judgment that a Vermont jury ordered Wyeth to pay her for failing to adequately warn about the risks of one of its drugs. The case could be significant in the ongoing battle over "preemption," a doctrine that can prohibit injured consumers from suing in state court when the product that allegedly caused injury has satisfied federal standards and requirements. The threshold issue in this line of cases is whether FDA approval of a drug preempts state law claims challenging safety, efficacy or labeling. Manufacturers have long argued that the FDA's actions are the final word on safety and effectiveness as provided by federal statute, but many states disagree. Thus, the Supreme Court’s decision is being closely monitored by industry and the plaintiff’s bar. This case ultimately could determine whether injured patients will be able to sue manufacturers under state law when the allegedly offending product has already been approved by the FDA. A decision by the Court in the last term held that a lawsuit concerning injuries caused by medical devices was preempted by a 1976 federal law.

In the current case, the patient, a Vermont resident, received Phenergan, which carries the warning: "inadvertent intra-arterial injection can result in gangrene requiring amputation." The patient received the drug via "IV push." The physician administering the drug missed the vein, eventually resulting in the amputation of the patient's arm. Because Phenergan's label did not rule out administration of the drug by IV push, the patient sued, arguing that the drug should have carried a stronger warning regarding IV push administration. Wyeth argued that it could not change Phenergan's labeling to comply with Vermont law without violating federal law. A jury disagreed and awarded the patient approximately $6 million, a verdict upheld by the Vermont Supreme Court.

FTC Red Flag Rules May Affect Hospitals and Other Providers

The Federal Trade Commission (FTC) has issued a reminder of the upcoming Nov. 1, 2008, compliance deadline for implementing identity theft prevention programs pursuant to the identity theft red flag rules (Red Flag Rules). In brief, the Red Flag Rules require financial institutions and creditors holding consumer or other "covered accounts" to develop and implement an identity theft prevention program, and to develop reasonable policies and procedures to prevent and mitigate identity theft. A “covered account” is defined as an “account…primarily for personal, family, or household purposes, that involves or is designed to permit multiple payments or transactions…for which there is a reasonably foreseeable risk to customers or to the safety and soundness of the…creditor from identity theft.” Patient accounts maintained by hospitals and other providers appear to satisfy this definition. The Red Flag Rules give entities some flexibility in implementing identity theft programs, depending on their size and the complexity of their operations. Because many of the requirements of the Red Flag Rules overlap with requirements of the Health Insurance Portability and Accountability Act (HIPAA), health care providers are likely to already have implemented many of the required measures in their HIPAA compliance efforts. We recommend that providers review their privacy and security programs to determine whether they adequately address the requirements of the Red Flag Rules.

Sweeping Changes Coming for Physician/Provider Relationships

A number of significant changes to the Stark Law may require physicians and hospitals to restructure joint ventures, leasing arrangements and other agreements. The changes were detailed in the fiscal year 2009 Inpatient Prospective Payment System Final Rule (Final Rule) published in late August. The Final Rule outlines several critical changes to the Stark Law that are likely to have a significant impact on many health care providers. The Stark Law generally prohibits physicians from referring patients to an entity for certain designated health services for which Medicare or Medicaid payment may be made if the physician has a financial relationship with the entity. Among the major impending changes: 

  • “Stand in the Shoes” Provision: Only physicians who have an ownership or investment interest in their physician organizations will be required to stand in the shoes of those organizations. This change in the scope of the definition permits academic medical centers and integrated tax-exempt health care delivery systems to continue to use the indirect compensation exception to protect eligible financial relationships. Direct compensation exceptions are required to protect remuneration flowing through a physician-owned group to its owner or employed physicians.
  • Services Provided “Under Arrangements”: Both the hospitals that bill for services provided “under arrangements” as inpatient or outpatient hospital services and the entities that provide those services will be considered to be furnishing “designated health services” (DHS) under Stark. This change will effectively eliminate a referring physician's ability to provide services under arrangement unless a Stark Law exception would permit a direct joint venture of the service. All existing “under arrangements” agreements must be reviewed by Sept. 30, 2009, to determine whether they must be restructured.
  • Percentage-Based Leasing Arrangements: Effective Oct. 1, 2009, the Stark Law will prohibit all percentage-based compensation in space and equipment leases.
    “Per-Click” Leasing Arrangements: Effective Oct. 1, 2009, the Stark Law will restrict the use of unit-of-service-based (per-click) leasing arrangements.
  • “Set in Advance” and Amendments to Agreements: Centers for Medicare and Medicaid (CMS) is reversing its prior position and allowing multiyear agreements to be amended after the first year without violating Stark's “set in advance” requirement.
  • Stark Compliance Audit: CMS plans to collect information from approximately 500 specialty and general acute care hospitals regarding their financial relationships with physicians. These providers will be required to complete a comprehensive Disclosure of Financial Relationships Report (DFRR). CMS will require each hospital to submit the DFRR within 60 days of receipt.

Drinker Biddle’s Health Law Practice Group will soon publish a detailed report discussing these and other changes announced in the recent Final Rule. Look for it in your inbox next week.

Favorable OIG Advisory Opinion for Patient Assistance Program

The Department of Health and Human Services (HHS) Office of Inspector General (OIG) issued a notice of modification to Advisory Opinion No. 04-15, a 2004 advisory opinion, regarding a charitable organization's operation of a patient assistance program that provides grants to financially needy patients to defray costs of prescription drug therapies. The patient assistance program subsidizes, in whole or in part, certain Medicare beneficiaries' Part B cost-sharing obligations. In its notice of modification, the OIG reviewed the charitable organization's three proposed changes to its patient assistance program: (1) to provide donors to the patient assistance program with monthly data regarding the aggregate number of applicants and qualifying applicants for assistance in particular disease categories; (2) to modify its standard donation agreement to allow donors to change or discontinue their contributions without cause with 120 days’ prior written notice; and (3) to expand its patient assistance program to provide assistance to patients suffering from additional, specific and life-threatening diseases. The OIG concluded that the three modifications to the charitable organization's patient assistance program did not affect its prior favorable conclusion in Advisory Opinion No. 04-15. Read the notice of modification here and the prior Advisory Opinion No. 04-15 here.

Federal Government Criticizes Illinois Certificate of Need Laws

In a joint statement to the Illinois Task Force on Health Planning Reform, the Department of Justice (DOJ) and Federal Trade Commission (FTC) announced that Illinois certificate-of-need (CON) laws undercut consumer choice, stifle innovation and weaken markets’ ability to contain health care costs. The announcement was part of an effort by the federal government to promote competition in health care. The agencies focused on Illinois because they believe that CON laws impede the efficient performance of health care markets by creating barriers to entry and expansion to the detriment of health care competition and consumers. They also note that the original reasons for implementation of CON laws (such as cost control) no longer apply in the modern health care environment. Supporters of CON laws argue that without such laws, hospitals tend to build in affluent areas and ignore poorer areas. CON laws continue to be in effect in more than 30 states. Read the joint statement here

Humana Settles with Wisconsin Department of Insurance

Humana Inc. agreed to pay the state of Wisconsin $750,000 to settle allegations that it sold Medicare health and prescription drug plans through agents that were not properly licensed and violated other insurance regulations. The forfeiture is the second largest in the state’s history. The settlement is based on: (1) a market-conduct analysis conducted as a follow-up to a previous investigation of Humana; and (2) concerns over Medicare Advantage and Medicare Part D marketing practices. The company denied that it engaged in any wrongdoing but agreed to the $750,000 settlement with the Office of the Commissioner of Insurance. Humana claims that investigators identified 62 out of 5,288 agents as potential wrongdoers, representing fewer than 0.1 percent of plans sold. The investigation included Humana’s marketing of health plans known as Medicare Advantage that take the place of traditional Medicare. The plans, which are sold by private companies that contract with Medicare, offer additional benefits or lower costs.

HHS Issues Common Formats for Collecting and Reporting Patient Safety Information

The Department of Health and Human Services’ Agency for Healthcare Research and Quality has issued Common Formats that may be used to collect and report patient safety information, including adverse events, near misses and unsafe conditions. The Common Formats include definitions and reporting forms that health care providers can use to collect and track patient safety information. The forms may be used to report a comprehensive range of patient safety concerns. For more information, see here.Federal Government Recovers $9.3 Billion in Whistleblower Lawsuits

Since the 1990s, when whistleblowers became an integral part in the fight against health care fraud, they have helped the federal government recover $9.3 billion from health care-related parties who have fraudulently billed the government, according to a study published in the Annals of Internal Medicine. Whistleblowers are the source of 90 percent of the health care fraud cases that the DOJ investigates. In a whistleblower case, the documents filed with the court are placed under seal. The DOJ reviews the sealed documents to determine whether it wants to intervene in the case. If the DOJ decides to intervene, the whistleblower usually receives between 15 and 25 percent of the amount recovered by the DOJ. Whistleblowers have received more than $1 billion of the $9.3 billion that was recovered from 1995 to 2005.
Source: Health Law Regulatory Update