Life Science Compliance Update

August 29, 2016

HRSA Releases Proposed Rule on 340B ADR Program


On August 12, 2016, the Health Resources and Services Administration (HRSA) published a proposed rule: “340B Drug Pricing Program; Administrative Dispute Resolution.” The Affordable Care Act required the Department of Health and Human Services (HHS) to promulgate a regulation that establishes and implements a binding administrative dispute resolution (ADR) process for resolving certain disputes under the 340B Program.

This proposed rule lays out the requirements and procedures that will apply to all drug manufacturers and covered entities that participate in the program. HRSA states that the ADR process is not intended to mock trial and should be used as a last resort, after good faith efforts to resolve disputes have been unsuccessful. There is a sixty day comment period for stakeholders.

Proposed Rule Highlights

Administrative Dispute Resolution Panel

HRSA proposes to establish a decision-making body to review and make binding decisions for claims filed by covered entities and manufacturers. The proposed panel will be made up of federal employees who have expertise in, and experience with, the 340B Program. HRSA welcomes comments on the proposed size and composition of the panel.


The ADR process is intended to be used with two different types of claims: (1) claims by covered entities who believe they have been overcharged for covered outpatient drugs by manufacturers and (2) claims by manufacturers that a covered entity has violated the prohibition on diversion to ineligible patients or duplicate discounts. This can only be done by manufacturers after they have conducted an audit. In the proposed rule, HRSA proposes that a claim be filed in writing within three years of the date of the sale or payment at issue and include sufficient documentation for the claim to be evaluated.

Consolidated Claims

HRSA proposes requirements for a covered entity to request consolidation of individual claims. Consolidated claims may also be made on behalf of covered entities by associations or organizations representing their interests. The ACA, however, disallows consolidated claims on behalf of manufacturers by associations or organizations representing their interests. HRSA would like specific feedback related to consolidated claims for manufacturers.


HRSA proposes that the part that files the claim must send the opposing party written notice within three business days. HRSA will make a determination regarding whether all requirements for a claim have been met and notify all parties within twenty business days of receiving the claim. If all requirements have been met, the claim will be forwarded on to the ADR Panel. HRSA proposes that the opposing party have twenty business days to submit their written response to the allegations, to both the Panel and the complaining party.

Final Agency Decision

In the proposed rule, HRSA proposes that the Panel prepare a draft letter that includes findings and conclusions regarding the alleged violation. The draft letter will be sent to all parties and allow for a twenty-day response period. Once responses to the draft letter have been received, the Panel will issue the final decision. The Final Decision will be binding on all parties involved, unless invalidated by a court order.

Comment Submission Information

Interested stakeholders can submit comments, identified by the Regulatory Information Number (RIN) 0906-AA90 via: (1) the Federal eRulemaking Portal; (2) email to; or (3) regular, express, or overnight mail to CAPT Krista Pedley, Director, Office of Pharmacy Affairs (OPA), Healthcare Systems Bureau (HSB), HRSA, 5600 Fishers Lane, Mail Stop 08W05A, Rockville, MD 20857.

A Mixed Bag - Implied Certification in False Claim Act Cases after the Escobar Decision


The United States Supreme Court, in recent decision in Universal Health Services, Inc. v. United States ex rel. Escobar (“Escobar”) reaffirmed that the government and realtors via qui tam suits can pursue False Claim Act (“FCA”) liability against life science and healthcare companies. In doing so, the Court recognized such claims can proceed on an implied false certification theory. The Court also added a requirement that such parties must also demonstrate any misrepresentations were “material” on statutory, regulatory, or contractual requirements that make such representations misleading on those goods and services. Given that this heightened materiality standard is new, and the Court has remanded some cases for application of such new standard, the impact of Escobar on FCA liability will require a wait and see approach.

The case of Universal Health Services, Inc. v. United States ex rel. Escobar (“Escobar”) has been closely followed and frequently discussed by the members of both the legal and compliance professions. Now that the U.S. Supreme Court has decided the case, it appears that neither side won a decisive victory. What this means for compliance professionals remains unclear, but for the legal profession, it portends further litigation to clarify the ruling.

 Read Full Article in the August 2016 Issue of Life Science Compliance Update

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August 26, 2016

Rocky Start to CMS ACO Program


Three of the 21 participants in CMS’ newest accountable care organizations program, the Next Generation ACOs, have withdrawn since the start of the year. Heritage California ACO in Northridge, Calif., River Health ACO in Harrisburg, Pa., and WakeMed Key Community Care in Raleigh, N.C. now leave the program with 18 ACOs. This model allows ACOs to assume higher risk for a promise of a higher reward than the Pioneer Model and Medicare Shared Savings Program.

Leaving New Model

The Next Generation ACO model uses a new benchmarking methodology that incorporates one year of historical costs as well as regional and national costs and an organization’s quality score. This is seen by many as an improved benchmarking methodology. As reported by Healthcare Finance, RiverHealth ACO released a statement: "While RiverHealth ACO managed the rate of increase in costs to below the national average, projections do not indicate that the ACO would be able to meet the current target set by CMS”.

Also reported, WakeMed Key Community Care also cited the difficult financial metrics. The ACO is a joint venture between WakeMed Health and Hospitals and Key IPA. WakeMed Key Community Care's Board of Managers made a business decision to withdraw from the Next Generation ACO program for 2016 after evaluating financial and operational metrics, according to the provider. "Though we were committed to the program, developments in Q1 led the board to reconsider the Next Generation participation decision," WakeMed Key Community Care said by statement according to the report.

State of other ACO Models

As reported by Leavitt Partners, the most popular of Medicare’s models, the MSSP, gained 100 new participants this year, increasing the total to 434 covering 7.7 million lives. Of those 434 MSSP ACOs, 22 have risk-bearing arrangements, including six in Track 2 and 16 in the new Track 3. Although CMS announced 100 new ACOs, the MSSP had 404 active ACOs in 2015, giving this new cohort a net increase of only 30. Eight MSSP ACOs moved to the Next Generation model and are accounted for, but further analysis will be needed in order to conclude how many ACOs merged with others vs actually leaving the program. CMS also announced that 147 MSSP ACOs chose to renew, continuing their participation in the program.

ACOs’ Future

A recent study indicates that ACOs may unintentionally create further disparities in healthcare. According to the report, physicians who participate in ACOs are more likely to practice in affluent areas. The study found an inverse relationship between ACO participation and the percentage of the population a physician served that was black, living in poverty, uninsured or disabled or had less than a high school education. This means patients who are already more vulnerable have less access to the benefits of ACOs.

Additionally, in 2015, 45% of Medicare ACOs costed more money than the government originally predicted based on historic patient costs. It was reported that 196 ACOs saved money last year, while 157 cost more than expected. Regardless, ACOs continue to be a major part of CMS’ policy agenda to move into value-based healthcare reimbursement. MACRA’s regulatory changes will encourage physicians to join ACOs, especially those with enough risk (and meeting other requirements) to be an Advanced APM. Other ACOs will attest to the new Merit-Based Incentive Payment Program (MIPS).

While until recently little has been known about the effect of Medicare ACOs on overall spending, and whether they have been able to reduce the use of high-cost care settings such as hospital stays and emergency department visits, new evidence suggests some modest gains. This is especially true when it comes to treating patients with multiple conditions who are responsible for the greatest proportion of spending.


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