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New HITECH Requirements for Reimbursement Eligibility
by Deanna Baxam on 07/13/10

Today, Secretary of HHS Kathleen Sebelius announced final rules under the Health Information Technology for Economic and Clinical Health (HITECH) Act of 2009.  HITECH was part of the stimulus bill, also known as the Recovery and Reinvestment Act of 2009 (ARRA).    

The new rules came from different agencies within HHS.  In its first wave of this change, CMS issued rules setting minimum requirements for the "meaningful use" of electronic health records (EHR) technology.  Healthcare providers will be asked to meet a core group of 25 requirements (23 for hospitals) that HHS says will focus on the quality, safety and efficiency of care, engage patients and their families in care, and promote the security of electronically stored personal health information.  In addition to these, providers must select from a menu of additional requirements they will also commit to meeting in order to qualify for incentive payments.  More criteria for demonstrating meaningful use would phase in as EHR technology becomes more robust.  

The government will also provide over $27 billion in financial incentives for provider compliance over the next 10 years.  Providers can begin registering for the incentive program in January 2011.  A physician could receive up to $44,000 from Medicare and $63,750 from Medicaid for switching to a certified EHR system and implementing the minimum requirements.  On the other hand, providers failing to meet these standards by 2015 could see their reimbursements for professional services "adjusted," presumably downward.  

To complement the CMS rules, the Office of the National Coordinator for Health Information Technology (ONC) also issued rules setting standards and a basic certification program for EHR software programs - to ensure that the software a provider buys from an approved provider will meet the minimum compliance requirements.  The agency expects certified software to become available in late 2010.

Pharmacist Commits Health Care Fraud, Loses Home
by Deanna Baxam on 07/06/10

A pharmacist who owned two independent Medicine Shoppe franchises in Baltimore, Maryland was sentenced on July 1 to 57 months in jail for healthcare fraud and ordered to pay over $500,000 in restitution and forfeit her home.  The actions that brought her low included: buying bulk drugs (including some to be dispensed for treatment of diabetes and epilepsy) from an unregistered supplier; repackaging and relabeling bulk drugs; dispensing expired drugs; using patients' identifiable personal information to log refills that had not been ordered by their physicians; and making false reimbursement claims. The pharmacist's actions violated U.S. laws governing sale of unapproved and misbranded pharmaceuticals, healthcare fraud, waste and abuse, and privacy of patient health information.

There may be no direct repercussions to Medicine Shoppes International, Inc., which is a subsidiary of Cardinal Health Inc., a leading provider of healthcare products and services.  However, one question that is probably being asked this week at franchise headquarters is, "How well are our franchisees meeting and complying with healthcare law requirements?"  It's probably true that a franchisor can reduce exposure to liability by including indemnifications, representations and warranties in franchise agreements.  Can these legal steps handle loss of business reputation?  Not so much.  Inevitably, if not addressed, compliance failures like these ard will tarnish the value of the franchise opportunity going forward, not to mention the smear on the corporate brand and reputation.

Doctor Trades Drug Companies' Cash for Jail Couture
by Deanna Baxam on 06/30/10

Last week, a formerly respected chief of acute pain management at a Boston area hospital, Dr. Scott Reuben, was sentenced to six months imprisonment for health care fraud.  A request for a more lenient sentence without jail time based on his plea bargain with the government was ignored.  

This doctor's ongoing misery began when he received clinical research grants, beginning in 2005, from Pfizer, Merck and others to conduct studies relating to painkillers made by those companies.  The drugs involved included Celebrex and Vioxx, which were making news during the same period for other reasons.  In a plea bargain, Dr. Reuben later admitted he never enrolled any study patients, and he never conducted the clinical trials.  Instead, fictitious study results were published in 21 articles, some in very respected medical journals.  

As part of his plea, the doctor has surrendered his license to practice medicine, consented to debarment (being listed as ineligible to participate in federal healthcare programs) and paid over $400,000 in restitution, fines and forfeited  payments.

How could this have happened?  The drugmakers funded some of his research (or more accurately his research plans) through grants for Investigator-Initiated Trials or IITs. They also provided free drugs.  However, the companies would (or should) have had have no other input or control over these studies involving their drugs, and this wall of separation may have contributed to the doctor's freedom to act without much oversight.

There are valid reasons for limiting the flow of communications between the drug or device maker and the researcher about the design, recruitment and execution of IITs.  Maintaining the researcher's independence as an investigator is one reason, and clearing the way for true scientific exchange of important clinical information is another.  

The worry in the past has been that a company's marketing and sales departments could become overly involved in the selecting, planning or execution of the research, and as a result the study and its outcomes could somehow be manipulated in the company's favor.   However, this case presents another pitfall in the way of physicians who might use the "wall" around the research to take the money and run.  

Arguably, the doctor's conduct in this case was completely unknown to the drugmakers, who were acting in good faith.  In fact, there are no reports to indicate Pfizer or the other drugmakers were targets in the government's investigation of Dr. Reuben.  This is mere speculation, but perhaps one reason the drugmakers went untouched could have been the existence of internal policies for how they engage with and support IITs.  

For a drug or device company, separating the management of these studies from marketing or sales influence is an important demonstration of the company's understanding of the studies' prime purpose or raison d'etre, which is the promotion of scientific exchange. Making sure the company is not the study sponsor, and that the investigator or his or her affiliated institution is solely responsible for all study-related support activities is also recommended.  Other steps for managing interactions with investigators follow from these key principles.

Of course, there's no way to completely insulate against the actions of a person or persons who are bent on acting dishonestly.

In a future post we'll discuss some aspects of the doctor's exposure to enforcement in conducting IITs.

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Moving Innovation Forward - The Bilski v. Kappos Decision
by Deanna Baxam on 06/29/10

Yesterday, after one of the longest waits in recent history, the US Supreme Court released its decision in the Bilski v. Kappos case.  It's not often the Supremes find a patent case on their playlist, and patent attorneys have been awaiting this ruling with an excitement usually reserved for Rolling Stone concerts, election results, or the arrival of a firstborn child.

The Court did what innovators were hoping for and confirmed that business methods can indeed qualify for patent protection.  The justices refused to agree with the circuit court that only one test for patentability could properly be applied. Instead, the lower courts are now directed to reassess how a business method may be evaluated to determine if they meet the standards for utility, novelty and nonobviousness within the framework of the patent statute.

There is a school of thought that says there is no novelty in a business method because these processes do only the obvious, and that if a process can be achieved without using complex mechanical means, it should not be eligible for a patent.  However, taking this view would prejudice future developments in many new and growing technology sectors.  Often, the most elegant inventions are simple answers to a long-recognized need that no one had previously recognized.  All the requirements for usefulness, novelty and lack of obviousness must be met, but these analyses should not be convoluted or contorted to fit past notions of what "feels" like an invention.  If an entrepreneur can envision a new process that meets these requirements and is a game-changer that will transform business and catapult productivity, whether that productivity is in the field of commodity trading, banking, healthcare administration, bookselling or elsewhere, that inventor should be entitled to patent protection and the right to exclusive use, even if what's been created is not a widget.   

The Court is saying it's time to think forward.  Agreed.

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April 29, 2010


Following a round of Warning Letters to makers of consumer food products in February, the Food and Drug Administration announced Thursday, April 29 that it has opened a docket to receive comments on the usefulness of front-of-package (FOP) labeling for food products.  

In 2009, FDA publicized its plan to propose guidance for manufacturers and retailers regarding nutrition labeling on the front of consumer food packages.  The stated goal is to collaborate with the industry to develop a useful approach to this type of labeling that would help consumers use the FOP information to make healthy food choices.  Some topical concerns in the evaluation of labeling options, based on the agency’s previous comments and recent trends, might include the use of symbols that suggest exaggerated nutritional or health benefit, the extent to which FOP labeling may confuse consumers or encourage them not read the required Nutrition Facts located elsewhere on the package label, and public and legislative concerns with obesity and its correlation with consumer food products.

The new labeling guidance, as it is currently envisioned, would effectively require nutritional information on the front-facing label of products sold in consumer outlets, or on the shelf tags used to identify these products in retail stores, for example in those instances where retailers’ shelf labeling systems could be considered FOP labeling by providing point of purchase information.  With today's announcement, FDA is soliciting a range of comments and data on:

Consumer use and understanding of FOP information
Effective approaches to FOP labeling
Design considerations
The extent to which including point of purchase information might  
             motivate manufacturers to reformulate their products

An Institute of Medicine committee is currently conducting a review of FOP Nutrition Rating Labels and Symbols, and a final report is expected later this year.  The committee will hold its third meeting on May 17 in Washington, D.C.

Comments from interested parties on the scope and character of the proposed guidance should be submitted electronically or in written form to FDA by July 28, 2010.

January 20, 2010


On Tuesday, January 19, the Justice Department unveiled a new take on enforcement of the Foreign Corrupt Practices Act - the good old-fashioned undercover sting operation.  Up until now, FCPA enforcement has been more conventional, usually in the form of whistleblowers or companies self-reporting violations they uncovered during finance or corporate compliance audits.  This time, the government obtained its own evidence through a two-year investigation in which a federal undercover agent posed as a sales agent to export guns and military equipment to an African country, and agreed to accept a 20% "commission" on a proposed $15M deal to sell weapons and military equipment.  The undercover agent made it clear that half of what he received would be paid to the Minister of Defense in the importing country as a bribe, but perhaps the deal makers, including companies that make guns, ammunition and bullet-proof vests, didn’t understand the significance of that statement.  Twenty-two people, including the VP of Sales at Smith & Wesson, were arrested this week.  Precursory to these arrests were the execution of search warrants by 150 federal agents in five states including Florida, Georgia and Pennsylvania.

Under the FCPA, it is unlawful for a US person (including US companies) to intentionally pay a bribe to a government official of a non-US country in order to get, direct or keep business, whether that bribe is money or some other inducement.   Under the Organization of Economic Cooperation and Development (OECD) Convention, several other countries have enacted laws similar to the FCPA.

Some US companies have in the past taken the position that one way to avoid the reach of the FCPA is to work through non-US distributors or agents, instead of employees.  However, recent US government actions do not support this approach.  A US company can be held culpable for actions by its agents, distributors and non-employee representatives that violate the anti-bribery prohibition of the FCPA.

The world of life sciences is far removed from machine guns and grenade launchers in real life, but every bit as susceptible to the FCPA as the arms dealers in this case.  Any transaction involving a government official in another country could become fertile ground for an FCPA investigation if any payments were made to elicit favorable decisions, for example for the approval of a clinical trial protocol or drug marketing authorization.  In addition, most overseas physicians with whom we do business as researchers, consultants and speakers are classified under the FCPA as government officials, therefore transactions with these professionals should be carefully managed to comply with FCPA requirements.  

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