Will Massachusetts be able to negotiate Medicaid prescription drug prices?

In the absence of new federal policies to tame high price drugs, Massachusetts’ state Medicaid program is fighting for the power to negotiate discounts for the drugs it purchases and to exclude drugs with limited treatment value.

If the Department of Health and Human Services approves the State’s plan, others will likely take similar action. According to the most recent federal data, Medicaid spending on prescription drugs increased about 25 percent in 2014 and nearly 14 percent in 2015.

Currently, state Medicaid programs are required to cover almost all drugs that have received Food and Drug Administration approval, including multiple drugs from different manufacturers used for the same purpose and in the same category. In exchange, manufacturers must discount those drugs. The discount is typically based on a set percentage of the list price, specified by federal law. However, as drug prices soar, states say those fractional discounts no longer suffice to defray the burden of rising costs.

One example presents itself through the hepatitis C cures released in recent years whereby prices come in tens or hundreds of thousands of dollars and have cost Medicaid billions. In turn, some states tried to restrict access so that only the sickest patients could get the drugs. Advocates filed suit in response and won based on the argument that such limits violated Medicaid’s statutory drug benefit.

In response, Massachusetts is requesting a federal exemption known as a Section 1115 waiver, which allows states to test ways of improving Medicaid. In short, it wants to pick which drugs it covers based on most beneficiaries’ medical needs and which medicines demonstrate the highest rates of cost effectiveness. The desired result is that it will be able to negotiate better prices, which in turn will lead to saving public dollars while still maintaining patients’ access to needed therapies.

Critics worry this change could make it harder for low-income people to get needed medications, without necessarily providing them an alternative. Further, the Pharmaceutical Research and Manufacturers of America (PhRMA), the drug industry’s trade group, has already noted its displeasure with this plan, saying that Massachusetts’ plan would limit consumer access and is ultimately unnecessary on top of the rebates Medicaid programs receive. If the Department of Health and Human Services approves the plan, it is likely that the industry would sue.

However, states are becoming desperate to find a way reduce the exorbitant costs of prescription drugs any way they can. If Massachusetts plan is approved, it is likely that there will be many other states that will be interested in following this lead.

The Five W’s of Intellectual Property Assets in Health Care Business Transactions


Intellectual Property (“IP”) assets are important in several types of business transactions, including healthcare business transactions. This article provides an overview of how one can best protect, transfer, and preserve IP rights pursuant to such a transaction.

Who has Healthcare IP?

Healthcare IP is a broad area. Among other things, it includes the IP of large institutions such as university medical centers conducting clinical trials, and pharmaceutical and biotechnology companies conducting drug research. It also includes the IP of smaller entities, such as physician practices making discoveries or creating new clinical devices or developing novel procedures and techniques.

What is Healthcare IP?

Healthcare IP can come in the form of patents, trademarks, copyrights, and even trade secrets. A research medical school may possess a process or method patent on a new procedure, while a pharmaceutical company may possess a product or formulation patent on a new drug. Hospitals, large ambulatory surgery centers, and even many solo physician practices may have registered trademarks on their logos, marks, and advertising. Healthcare providers and entities also may have copyright protections on their publications, protocols, and policies and procedures. Some jurisdictions have also extended IP rights to items such as patient lists under the umbrella of trade secrets. Other assets that share similarities with healthcare IP include “doing business as” (“DBA”) or assumed name filings, web domains, and even business insider knowledge and relationships.

When do you start the process of evaluating Healthcare IP?

When engaging a target healthcare company for merger or acquisition, healthcare IP should be a topic in early business negotiations and be an item in the first due diligence checklist submitted to the seller. From the buyer’s perspective, it is important to have an early handle on what IP is involved in a transaction so that the proper steps are taken to make sure it is adequately preserved and protected in the transaction. From the seller’s perspective, it is important to disclose IP and the actual rights to it so that it is clear what the buyer is buying, and also that the seller indeed possesses the rights to it in order to sell. If the buyer utilizes IP in good faith that the seller in fact did not possess, the seller could ultimately be liable via indemnification if this was not properly disclosed.

Where do you describe and list Healthcare IP?

Healthcare IP should be listed in a comprehensive and straightforward manner in the disclosure schedules to the purchase agreement. Care should also be taken to describe the IP fully and properly in any necessary assignment agreements, registration updates, and in any other required places.

Why is Healthcare IP important?

Healthcare IP is important for numerous reasons. For several entities, such as universities or pharmaceutical companies, it can represent millions, if not billions, of dollars in investment and research and development. For other smaller entities, in the instance of a trade secret, it may not necessarily represent the same kind of capital investment but it may very well still be critical to the survival of that business. Regardless of scale, it is important to maintain and also to transfer IP properly. If not secured properly, IP may be lost. For example, if a buyer does not know about acquired IP, it will not know to file regular maintenance fees and could risk cancellation of the IP. Conversely, if a buyer thinks it owns IP that it actually does not, it may end up violating another entity’s IP rights through use without knowing it. A cease and desist letter accompanied by a demand for unpaid royalties may quickly follow.

How do you secure Healthcare IP?

The best way to secure healthcare IP is to first identify the IP. As mentioned above, care should be taken to comprehensively list IP in an asset purchase agreement. In the case of a stock purchase, it is critical to ensure that the corporate entity selling its stock actually is the invention owner or assignee of record, etc., that possesses the right to transfer the IP. Then, proper steps should be taken to commemorate and transfer the IP through the deal documents and any necessary assignment agreements. Concurrently, proper notices and updates should be made to the various relevant governmental entities such as the U.S. Patent and Trademark Office, the U.S. Copyright Office, and state-level agencies such as the secretaries of state, and trademark offices, as required.


Healthcare IP is an important piece of healthcare transactions. For some businesses, it may represent the raison d’être for the business; for example, a big pharma spinoff whose one product is a therapeutic HIV drug. For other companies, healthcare IP could be less mission-critical. In both circumstances, however, IP is likely a valuable component of a company’s assets and should therefore be given due thought and consideration in a transaction.

About the Author

Justin Puleo is an associate attorney in the Raleigh office of Gordon Rees Scully Mansukhani, and a member of the firm’s Intellectual Property and Healthcare practice groups. He has an interdisciplinary background, which he has leveraged into a full and diverse practice. He is an experienced healthcare transactional attorney and a member of the patent bar who appreciates finding creative and regulatory compliant solutions to business concerns and initiatives. He can be reached at (984) 242-1790 or jpuleo@grsm.com.

California mandates new rules in drug cost pricing changes

The State of California has taken an unprecedented step with regard to transparency in the pricing of pharmaceuticals.

On Monday, October 9, 2017, California Governor Jerry Brown signed bill SB 17, which will mandate that drug manufacturers substantiate the need for price increases of their drugs to the public.  Specifically, the bill requires the manufacturers to notify both private and public health insurers and plans at least 60 days prior to any price hike for any drug that amounts to more than 16% over a two-year period.  Even more importantly, the drug manufacturer would be required to justify the need for a price hike by providing a public explanation.

According to Governor Brown, “Californians have a right to know why their medical costs are out of control, especially when pharmaceutical profits are soaring.”  One of the goals Brown hopes to achieve with this bill is to level the playing field between the pharmaceutical leaders and those who struggle to pay for necessary medication.

Those in support of such a bill are spread across a variety of industries, including labor, business, consumer, local government and healthcare.  Even health insurance companies have agreed to provide information and data to assist in effort toward transparency.  Under the bill, they will have to disclose the premium increases which are attributable to the costs of drugs.

Supporters believe that such regulation is a necessity given that there has been a 127% increase in U.S. prices for top brand-name drugs between 2008 and 2014.  In a world-wide comparison, other developed nations average just 41% of U.S. net drug prices for the 20 top-selling drugs. Scrutiny into these U.S. price hikes has been growing.  In 2016, Mylan Pharmaceuticals was strongly criticized and publicly condemned for increasing the price of the EpiPen by more than 500% over a 10-year period.

Not surprisingly, the drug lobby has spent significant time and money opposing SB 17.  This is likely out of fear that such a bill will become the national standard.  Specifically, they argue that Governor Brown is not keeping the best interests of the patients in mind and that the bill could result in a drug shortage.  They also assert that the bill does not allow for disclosure of the rebates and discounts that insurance companies and pharmacy benefit managers receive but fail to pass onto the patients.

Ultimately, SB 17 will not actually lower the prices of drugs in the U.S.  It will, however, shed some light on the process used by pharmaceutical companies to set drug prices.

Updated HIPAA Breach Reporting Tool Launched by HHS

Linda Hunt Mullany, JD, RN, CHPC

July 31, 2017

“…a more positive, relevant resource of information for concerned consumers.”

On July 25, the U.S. Department of Health and Human Services (HHS), Office for Civil Rights (OCR), unveiled a revised Health Insurance Portability and Accountability Act (HIPAA) Breach Reporting Tool (HBRT) that provides consumers improved access to information on breach data, and also provides greater ease-of-use for organizations reporting incidents. The HBRT makes required reporting information public, such as name of the entity suffering the breach; state where the breach occurred; number of individuals affected; date of the breach; type of breach (e.g. hacking/IT incident, theft, loss, unauthorized access or disclosure); and the location of the breached information (e.g. laptop, paper records, desktop computer). HIPAA also requires health care providers and other covered entities to promptly notify individuals of a breach and, in some cases, notify the media.

HHS Secretary Tom Price, M.D., explained, “HHS heard from the public.  . . .To that end, we have taken steps to make this website, which features only larger breaches, a more positive, relevant source of information for concerned citizens.”

The HRBT may be found at: https://ocrportal.hhs.gov/ocr/breach/breach_report.jsf.

CMS to Publish Proposed Rule Allowing LTC Pre-Dispute Arbitration Agreements as Condition of Admission

Today (June 8, 2017), CMS is publishing its proposed rule removing prohibitions against binding pre-dispute arbitration provisions in long-term care agreements.  On October 4, 2016, CMS published a final rule entitled “Reform of Requirements for Long-Term Care Facilities.” The final rule amended 42 C.F.R. 483.70(n) to prohibit LTC facilities from entering into pre-dispute arbitration agreements with any resident or his or her representative, or requiring that a resident sign an arbitration agreement as a condition of admission. The final rule required 1) that an agreement for post-dispute binding arbitration must be entered into by the resident voluntarily; 2) that the parties must agree on the selection of a neutral arbitrator; and 3) that the arbitral venue must be convenient to both parties. The arbitration agreement could be signed by another individual only if allowed under state law and all other requirements under the Federal Rule were met.  Particularly, a resident’s admission or right to remain at the facility could not be made contingent upon the resident or his or her representative signing an arbitration agreement.

However, in October 2016, the American Health Care Association and a group of affiliated nursing homes succeeded in obtaining a preliminary injunction in the United States District Court for the Northern District of Mississippi.  The district court held that the plaintiffs were likely to prevail in their challenge to the 2016 final rule. It concluded that it would likely hold that the rule’s prohibition against LTC facilities entering into pre-dispute arbitration agreements was in conflict with the Federal Arbitration Act (FAA), 9 U.S.C. 1 et seq. The court also reasoned that it was unlikely that CMS could justify the rule, or could overcome the FAA’s presumption in favor of arbitration, by relying on the agency’s general statutory authority under the Medicare and Medicaid statutes to establish rights for residents (sections 1891(c)(1)(A)(xi) and 1919(c)(1)(A)(xi) of the Act) or to promulgate rules to protect the health, safety and well-being of residents in LTC facilities (sections 1819(d)(4)(B) and 1919(d)(4)(B) of the Act).  CMS subsequently issued a nation-wide instruction on December 9, 2016, directing state survey agency directors not to enforce the 2016 final rule’s prohibition of pre-dispute arbitration provisions,  while the injunction remained in effect.

Under the recently announced policy change, CMS would retain provisions of the 2016 final rule related to protecting the interests of LTC residents, including the requirement that the agreement be explained to the resident and his or her representative in a form and manner that he or she understands. However, the proposed rule would remove the following:

  • the requirement at §483.70(n)(1) precluding facilities from entering into pre-dispute agreements for binding arbitration with any resident or resident’s representative;
  • the prohibition at §483.70(n)(2)(iii) banning facilities from requiring that residents sign arbitration agreements as a condition of admission to a facility;
  • certain provisions regarding the terms of arbitration agreements.

The proposed rule would retain the requirement that a copy of the signed agreement for binding arbitration and the arbitrator’s final decision must be retained by the facility for 5 years and be available for inspection upon request by CMS or its designee. Comments on the proposed rule must be received at CMS by 5:00 p.m. on August 7, 2017.

2016 Was a Busy Year: Developments in Nursing Facility Arbitration Law

Nursing home arbitration agreements get a bad rap. But as most practitioners in the field know, nursing facility arbitration agreements seem here to stay, at least (possibly) until recently.  Arbitration is thought by many to offer significant flexibility and efficiency vis-à-vis litigation, and proponents in the skilled nursing industry cite arbitration as an important tool to reduce litigation costs – including, of course, the costs associated with “runaway jury” punitive and noneconomic damages verdicts, which can be crippling to industry participants.

The enforceability of nursing facility arbitration agreements has long been a hotly contested issue.  It probably is fair to say that, in general, courts broadly view these agreements as enforceable in a vacuum, but they will approach any particular instance with a healthy degree of skepticism.  Occasionally, state courts have tried to go one step further than analyzing and rejecting nursing facility arbitration agreements on an ad hoc basis and have announced a per se rule against enforceability of such agreements.  That typically does not end well for those courts.

The relatively recent Marmet decision is a good example of this latter scenario.  There, the West Virginia Supreme Court issued a decision in a consolidated group of cases holding that pre-dispute nursing facility arbitration agreements were void as against public policy under state law  The decision was appealed to the U.S. Supreme Court, which granted certiorari and promptly slapped down the state court.  In a (relatively) scathing per curiam opinion, the Court emphasized:  “As this Court reaffirmed last Term, ‘[w]hen state law prohibits outright the arbitration of a particular type of claim, the analysis is straightforward:  The conflicting rule is displaced by the FAA.’  … That rule resolves these cases.  Since that decision, state courts seem to be somewhat more receptive to honoring and enforcing nursing facility arbitration agreements.

In 2016, however, federal regulators attempted to throw a curveball to the skilled nursing industry.  On September 28, 2016, the Centers for Medicare and Medicaid Systems (“CMS”) announced a new rule ostensibly intended “to make major changes to improve the care and safety of the nearly 1.5 million residents in the more than 15,000 long-term care facilities that participate in the Medicare and Medicaid programs.”  As part of this new rule, which would go into effect on November 28, 2016, CMS banned the use of pre-dispute arbitration agreements by nursing homes on a going-forward basis.  It noted that the rule did not apply to existing arbitration agreements (thus avoiding running afoul of the Federal Arbitration Act), and it specifically allowed nursing facilities and plaintiff-residents to agree to arbitrate after a dispute has arisen.  But the sort of prospective arbitration agreement that is presented to residents and potential residents at the time of admission would be prohibited from now on.  Although the rule technically only applied to nursing homes that accepted Medicare and Medicaid funds, as a practical matter, that included virtually all such facilities.

Needless to say, this was a controversial measure.  And the industry did not take it lying down.  On October 17, 2016, a group of trade organizations and nursing facility operators filed a lawsuit in the U.S. District Court for the Northern District of Mississippi challenged the pre-dispute arbitration rule.  On November 7, 2016, the court ultimately agreed with the challengers and entered an order preliminarily enjoining it.  It held in relevant part that a federal agency regulation effectively banning a certain type of arbitration agreement, even on a prospective-only basis, would be flatly inconsistent with the overarching pro-arbitration policy and purpose embodied by the FAA.  On December 9, 2016, CMS capitulated and sent a memorandum to Medicaid state survey administrators announcing that the rule should not be enforced unless and until the litigation was resolved and the injunction was lifted.  Especially in light of the change in administrations, the ultimate status of the pre-dispute arbitration rule is uncertain at best, and it is currently not being enforced.

So where does that leave nursing facility arbitration agreements?  Are facilities free to include them in admissions packets without fear that they will be unenforceable?  The answer to those questions necessarily is a qualified one.  Pre-dispute nursing home arbitration agreements still are not unenforceable per se, but at the same time, they will be looked upon with varying degrees of skepticism by courts.  As noted above, many post-Marmet state courts seem to have gotten the message that animus towards nursing home arbitration agreements will not be tolerated by the federal judiciary.  But “many” does not mean “all” (or even, necessarily, “most”), and there are still a number of states and jurisdictions in which courts appear likely to continue to go out of their way to find reasons as to why any particular arbitration agreement should not be enforced.

As such, it is crucial that any nursing facility or operator of facilities that wants to institute (or continue to use) an arbitration program go to great lengths to dot every “i” and cross every “t” when offering residents the opportunity to enter into an arbitration agreement.  This includes proactively reviewing the form arbitration agreement currently in use to ensure it complies with state contract law requirements, and training admissions staff so that the avoid typical pitfalls when presenting arbitration agreements to residents or prospective residents to sign (e.g., making sure that the resident has capacity to sign or that there is sufficient documentation for a representative to sign on behalf of that individual, making sure that the agreement is properly witnessed and countersigned, etc.).

Litigation over the arbitrability of a nursing facility dispute can itself be so costly and time-consuming that it removes many of the efficiencies and related advantages of arbitration. As is usually the case, it is best to try to address that potential issue on the front end of things.


Behavioral Health System to Pay $860,000 for Anti-Kickback Statute Violations

Under a civil settlement with the Department of Justice, El Paso Behavioral Healthcare, formerly University Behavioral Health of El Paso, LLC (“UBH”), has been ordered to pay over three-quarters of a million dollars to resolve allegations that it made improper payments to a doctor in exchange for patient referrals, and submitted false claims to Medicare.

The allegations focused on the Medicare claims of several patients from a physician whose office received payments above fair market value, or payments for services that were not rendered pursuant to a physician services agreement which also provided for the improper referral of the physician’s patients to UBH for Medicare-reimbursed services.

Federal law, including the Anti-Kickback Act and the Stark Law, seeks to ensure that services reimbursable by federal healthcare programs are paid at fair market value and based on the best interests of patients rather than the personal financial interests of referring physicians.

Periodic review of physician agreements should be a key component of any effective compliance program. In addition to the potential criminal sanctions that may be imposed for anti-kickback violations, Medicare claims arising from such improper financial relationships may result in substantial additional false claims liability. Healthcare facilities which discover Medicare overpayments through an effective compliance program can limit their liability through self-reporting.  Read more here.

CMS Publishes Final Rule: Sweeping Changes to Home Health Agency CoPs

On January 13, 2017, CMS published its final rule revising the conditions of participation (CoPs) that home health agencies (HHAs) must meet to participate in Medicare and Medicaid programs. The final rule implements the proposed rules published in the Federal Register October 9, 2014 (79 FR 61164), and becomes effective July 13 2017.

Among its many changes, the final rule redefines terms and establishes new standards for the content of comprehensive patient assessments, care planning, coordination of services, quality of care, quality of assessments and performance improvement (QAPI), skilled professional services, home health aid services, and clinical record keeping. The rule also makes changes to personnel requirements including limiting who can be an HHA administrator. To review the final rule in its entirety, click here.

The Joint Commission Issues Clarification on Texting of Patient Care Orders

“The use of secure text orders is not permitted at this time.”

In 2011 the technology to provide for the safety and security of text messaging was not available, and at that time The Joint Commission (“TJC”) said it was not acceptable for practitioners to text orders for patient care and treatment.  Then in May of 2016, TJC acknowledged all of the technology and data privacy and security issues it had in 2011 had been addressed. As published in The Joint Commission Perspectives, TJC revised its position and said physicians could text message when done in accordance with standards of practice, laws and regulations, and policies and practices “as long as the system met specific requirements .”

Since then, however, TJC got together with CMS and recently issued updated recommendations that include the following:

  • Providers should have policies prohibiting the use of unsecured text messaging of PHI.
  • CPOE (computerized provider order entry) should be the preferred method for submitting orders, which are directly entered into the electronic health record.
  • If a CPOE or written order is not available, a verbal order is acceptable, but only when impossible or impracticable to use CPOE or written orders.
  • The use of secure text orders is not permitted at this time.After further review the call on the field, as it were, has been overturned.

This turnaround came about after TJC and CMS discussed the issues with numerous stakeholders, including text messaging platform vendors and experts in EHRs. The identified issues that led to the recent decision included:

  • Increased burden on nurses to manually transcribe text orders into the EHR.
  • Verbal orders are preferred when CPOE not used, because they allow for real-time clarification and confirmation of the order as it is given by the practitioner.
  • Text messaging could cause delay in treatment where a clinical decision support (“CDS”) recommendation or alert is triggered during data entry, requiring the nurse to contact the practitioner for additional information.

To view the Dec. 22, 2016 full text article on the TJC website click here to download.


Tis the Season to be Giving – OIG Increases “Nominal Gifts” Limit

The Office of the Inspector General (OIG) announced this Holiday season that it is increasing the monetary value of gifts falling under the nominal value exception to Medicare’s Civil Money Penalty Law.  Under section 1128A(a)(5) of the Social Security Act [42 U.S.C. §1320a-7(a)], a person who offers or transfers to a Medicare or Medicaid beneficiary any remuneration that the person knows or should know is likely to influence the beneficiary’s selection of a particular provider, practitioner, or supplier of Medicare or Medicaid payable items or services may be liable for civil monetary penalties (CMPs) of up to $10,000 for each wrongful act. “Remuneration” includes waivers of copayments and deductible amounts (or any part thereof) and transfers of items or services for other than fair market value[1].

However, as the OIG explained in its December 7, 2016 “Policy Statement Regarding Gifts of Nominal Value to Medicare and Medicaid Beneficiaries,” Congress intended to permit inexpensive gifts of nominal value.  The OIG has previously interpreted “inexpensive” and “nominal value” to mean a retail value of no more than $10 per item or $50 in the aggregate per patient on an annual basis, noting that it would periodically review these limits and adjust them according to inflation, if appropriate.[2]

The OIG now believes that the figures from 2000 should be adjusted. Thus, as of December 7, 2016, the OIG has modified its interpretation of “nominal value” to mean having a retail value of no more than $15 per item or $75 in the aggregate per patient on an annual basis.  The items may not be in the form of cash or cash equivalents. If a gift has a value at or below these thresholds, then the gift need not fit into an exception to section 1128A(a)(5).  Happy Holidays from the OIG.

[1] See section 1128A(i)(6) of the Act.

[2] See, e.g., 65 FR 24400, 24411 (Apr. 26, 2000).