Life Science Compliance Update

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33 posts from December 2013

December 31, 2013

Policy and Medicine: Current Healthcare Landscape and Predictions for 2014

We see 2014 as a year of change for the healthcare market. Forces such as the newly implemented health exchanges, the beginning of the penalty phase for quality improvement, and the implementation of the ICD-10 coding system will make a tremendous impact on the practice of medicine.

For the pharmaceutical and device industry, this year brings challenges in adapting not only to domestic health law changes, but also international compliance concerns. With news of GSK's major bribery investigation in China, and their subsequent announcement to stop speaker programs and prescription sales targets, 2014 will see increased globalization in all aspects of the healthcare landscape.

Growth in Prescription Drug Spending?

The Centers for Medicare and Medicaid Services (CMS) recently released their forecast for national health expenditures. Prescription drug spending growth, which was negative in 2012, is projected to accelerate to 5.2% in 2014 (see Table 11).

Projected prescription drug spending growth for 2014 is 5.2 percent (2.9 percentage points higher than growth estimated without the effects of the Affordable Care Act), driven by increases in use of prescription drugs among people who are newly insured or those who move to more generous insurance plans as a result of the premium and cost-sharing subsidies offered by the Affordable Care Act.

For 2015 through 2022, rising drug prices and expected increases in utilization drive faster overall projected average annual growth in prescription drug spending (6.5 percent per year). The generic dispensing rate is anticipated to level off, pushing average prescription drug prices up more rapidly. Faster projected income growth for 2014 through 2016 and the prescribing of drugs earlier in the treatment process as the population ages drive projected faster utilization.

But others are less optimistic. The bungled launch of will go down as a case study in how not to launch a program. Furthermore, many of the spending estimates are based on unrealistic projections of enrollment in the exchanges. Even with less idealistic enrollment projections, however, other considerations suggest the 5.2% increase is a very high estimate.

Significantly, PWC Consulting believes that while insurance mandates of the ACA may lead the previously uninsured population to spend more on prescription drugs, "[a]ny revenue gained from the newly insured population is unlikely to offset the new rebates, discounts, and fees the industry must pay under the ACA." I am going to go out on a limb and predict a more modest 1.2% growth rate in pharmaceutical spending for 2014, which is in line with the increase from 2012 to 2013 (Table 11).

Payment Reform Kicks into High Gear

Quality will take front and center stage during 2014, but it is not entirely clear what "quality" means. Recently, we asked hospital administrators and health experts about the major disrupters expected for 2014. Most are perplexed by the prospect of improving CMS's definition of quality at reduced costs.

What are some of these penalties? Starting January 1, 2014, physician practices will be fined 2% of their Medicare and Medicaid billings for not using electronic prescriptions (eRx) in 2012. Though the program is short lived, it will affect a large number of smaller physician practices. These eRx penalties could foretell additional fines from the Physician Quality Reporting System (PQRS), "Meaningful Use" of Electronic Health Records, and the Value-Based Modifier Program, which, when added up, could be 10% of a physician's billings. Performance in 2014 will affect billings in 2016: physicians who put off getting electronic health records under Meaningful Use will face 2% fines for this year's performance and those who fall below the mean for PQRS will face an additional 2%.

Also, beginning in 2015, payment rates under the Medicare Physician Fee Schedule for groups of 100 or more eligible professionals will be subject to a Value-based Payment Modifier. By 2017, this modifier will be implemented for all physicians. Physicians who do not demonstrate higher quality and lower costs will receive lower payments. Value-Based Purchasing payments are determined by how hospitals scored on various sets of measures, including "patient satisfaction."

Look for physicians to develop a keen interest in these quality-based programs in the coming year, especially as health care providers start to receive fines. We believe education in this arena is very important— it is difficult to hit the target if one does not know what he is supposed to be aiming at. 2014 will be an important year to educate about measures to help physicians and health systems meet their quality goals.

Affordable Care Act Launch

The failed rollout of was well publicized, as were stories of individual policies being cancelled. In 2014, we will also see companies whose policies do not meet the minimum standards laid out in the Affordable Care Act beginning to receive cancellation notices. This could have a ripple effect in years to come, with fewer employees having their health care covered.

Sunshine Reports

This past August, the Physician Payment Sunshine provision of the Affordable Care Act was fully implemented. Applicable manufacturers (pharmaceutical, biologic and device manufacturers and distributors) will report all payments and transfers of value to physicians and teaching hospitals to the Centers for Medicare and Medicaid Services (CMS). The first report is due on March 31st to CMS. Sometime this coming summer physicians will be able to review their data that was submitted by companies. By October 1, 2014 the database will be fully open to the public.

During the past few months of 2013, we have reported on CMS's webinars, designed to give manufacturers time to get comfortable with the technical aspects of the Open Payments website. CMS has chosen the same vendor for the Open Payments platform as, so it will be interesting to see whether the rollout for the Sunshine Act avoids the problems that dogged the health care marketplace.

ACOs and the Landscape of Healthcare

In late December, the Department of Health and Human Services (HHS) announced the addition of 123 new Accountable Care Organizations (ACOs). This brings the total to over 360 separate organizations participating in the Medicare Shares Savings programs, with around 6,000,000 covered patients.

ACOs are groups of doctors, hospitals, and other health care providers, who come together to give coordinated high quality care to their Medicare patients. According to CMS, the "goal of coordinated care is to ensure that patients, especially the chronically ill, get the right care at the right time, while avoiding unnecessary duplication of services and preventing medical errors." HHS also announced the release of an RFI for a next generation shared savings (ACO) program.

2014 will see continued growth in the ACO marketplace with private payors joining in on this effort, looking for ways to save money and deliver higher quality healthcare. Many ACO's have used this program to take advantage of consolidation, as there is an antitrust exemption provided to healthcare organizations setting up ACO's.

Continued Consolidation

Whole cities are being divided up by regional health systems each claiming a piece of land. The trend to buy physician practices and the consolidation of health systems in a market place will continue and even accelerate in 2014. As recent examples, ADP acquired AdvancedMD and McKesson acquired Med3000.

We expect top companies to make key strategic purchases to accelerate growth and increase their market share. This is especially true with fines coming into play for not meeting certain quality measures or meaningful use of electronic medical records. Smaller practices may be forced to sell to larger entities just to keep their billings current.

ICD-10: The Coming Tsunami

This is the issue very few are addressing. On October 1, 2014 all of the International Classification of Disease (ICD) codes will change. The ICD was developed by the World Health Organization and serves as the codes healthcare providers around the world use to bill for diagnosis and procedures. The change is intended to create more detailed public health records, providing a more effective means of tracking health patterns and outbreaks of sickness.

As we previously reportedthe U.S. remains one of the few developed countries that has not transitioned to ICD-10 or a clinical modification. ICD-9, which was implemented in the U.S. in 1979, is an antiquated code set that no longer adequately meets the challenges of a 21st century healthcare system.  The ICD-9 codes used to report medical diagnoses and inpatient procedures will be replaced by the ICD-10 codes for services provided on October 1, 2014. ICD-10 classifications are the foundation for critical national healthcare initiatives such as meaningful use, value-based purchasing, payment reform, quality and quality reporting, and patient and population safety.

Some medical industry groups fear the costs and potential added complications could be extremely burdensome. The conversion from ICD-9 to ICD-10 is not a simple program upgrade. The number of codes jumps almost 10x, from 16,000 codes in ICD-9 to 155,000 codes in ICD-10, and the codes are drastically more complex in ICD-10. This represents a significant change for medical professionals. Accurate coding is key to timely and accurate reimbursement for services rendered, and more codes creates concern about more mistakes.

According to Capital New York, the U.S. Department of Health and Human Services estimates the updates will cost the industry $1.64 billion. The estimate includes $357 million for staff training, $572 million in lost productivity and $713 million for system changes. The federal government, and proponents of the new system, argue the greater precision found in the new codes will lead to as much as $4 billion worth of savings over the next decade.

At least in the short-term, though, it is tough to argue with those concerned with the update. HHS has announced they will be doing no end-to-end testing—experimenting with all the possible scenarios, allowing the physician practices and hospitals to submit bills with the codes in advance, and determining what the re-imbursement rate will look like, or even if those codes will be reimbursed. A related concern is that the transition to ICD-10 on the company level is a gigantic task. Providers should consider having at least one person assigned to lead this changeover—an individual or group of individuals personally responsible to oversee the implementation. Furthermore, changing the coding will have direct effects on quality research as many studies utilize existing codes. With no clear conversion path, quality studies may be set back by several years due to this transition.

SGR Repeal: Thank God Almighty we may be free at last

The current problem can be traced back to the 1997 deficit reduction law that called for setting Medicare physician payment rates through a formula based on economic growth and known as the "sustainable growth rate" (SGR). For the first few years, Medicare expenditures did not exceed the target, and doctors received modest pay increases. But in 2002 doctors received close to a 5% pay cut. Every year since, Congress has staved off the scheduled cuts through various "doc fixes," which only deferred the problem and increased the fix needed the next time.

Burried within this repeal is the Medicare Access for Transparency and Accountability Act, this act would require medicare to publish all sorts of medicare payment data on healthcare providers available in a publically available and searchable database.  The problem with this is that this data could easily be taken out of context and used against physicians for proceedures that are new or newly tested or as a database for malpractice tort claims. 


Now, for the first time in memory, there is a real bipartisan report for a repeal. On December 26, 2013, President Obama signed into law the Pathway for SGR Reform Act of 2013. Despite this being another short term fix for physicians who treat Medicare patients, preventing the SGR-scheduled 20.1% payment reduction from taking effect on January 1, 2014, the Act gives Congress three months to finalize a permanent solution. The Act will incorporate accountable care and value-based reimbursements for an industry shifting to patient-centered care. The Pathway for SGR Reform's bonuses and penalties for performance measures will be integrated into Medicare payments on a larger scale, with payments and penalties fluctuating up to 1% for high and low performers.

Enforcement Goes Global

The GSK scandal in China reinforces that implementing compliance is now very much a global operation. Companies can no longer afford to give autonomy to their country affiliates. Look for increased action in global compliance, especially the Foreign Corrupt Practices Act and UK Bribery laws coming in to clean up and fine companies who have found trouble in local markets.

Furthermore, as arguably a ripple effect from the bribery investigation in China, GSK's decision to stop paying healthcare professionals for speaking engagements and for attendance at medical conferences is unprecedented, and will send ripples throughout the industry. This is the first time a company on a global level has discontinued the practice of paying physicians to speak about their products.

Also, look for countries to announce laws similar to the Physician Payment Sunshine Act or the French Sunshine Act. We reported in November that the Association of the British Pharmaceutical Industry (ABPI) agreed to amend the ABPI Code of Practice for the Pharmaceutical Industry to require increased disclosure of payments within the healthcare community. The ABPI released a statement highlighting the importance of greater transparency in the relationships between the pharmaceutical industry and healthcare professionals. It is likely that other European countries will look more closely at how they regulate relationships between the pharmaceutical industry and healthcare professionals.


In mid-December, the US Supreme Court rejected an appeal from Pfizer, letting stand a First Circuit ruling that the drug company improperly marketed Neurontin to Kaiser. The Court's denial means that Pfizer has to pay Kaiser $142 million in damages for violating the Racketeer Influenced and Corrupt Organizations (RICO) Act. This case is one of only a handful of off-label promotion cases involving the RICO Act, a law traditionally used to combat organized crime. Most remarkable about the case was the amount of attenuation the court used. They found that Kaiser could rely on aggregate data showing a link between Pfizer's promotional spending for unapproved uses and the number of off-label prescriptions written. No doctors were interviewed to testify as to whether the improper marketing actually caused them to prescribe Neurontin for off-label purposes. The absence of a causal connection requirement is unprecedented.

Pharmaceutical companies should be concerned about RICO claims after this ruling. Drug manufacturers could face an increased threat of liability in connection with their marketing practices due to the First Circuit's willingness to consider generalized means of proof, such as statistical analyses. This also opens the door for third-party payors, including insurers and HMOs, to recover for the financial harm caused by misleading drug marketing. While RICO action traditionally has been brought by patients claiming physical injury from drugs prescribed as a result of misleading drug marketing, the First Circuit opens the door to many companies like Kaiser.

Look for older settlements to be brought back up and used against pharmaceutical and device companies in the course of the year.


There is a lot of change in store for 2014 in the healthcare arena. Despite the challenges listed above, the changing landscape is an exciting one to be a part of. Technological advancements and increased globalization could pave the way for more efficient, better care. In periods of change, leadership is a great asset and we encourage all those reading this article to see this as a tremendous opportunity. When we look back a year from now we may be saying there was never a greater time to be in healthcare.

Happy New Year!!!!

December 30, 2013

HHS Duplicative Databases Slows Enforcement Efforts

The Government Accountability Office (GAO) published a report highlighting the important role oversight and law enforcement agencies play in eliminating fraud, waste, and abuse.

The report found "more than $300 million in duplicative IT systems at three different government agencies, including the U.S. Department of Health & Human Services--which has six duplicative systems costing $256 million alone," reported FierceHealthIT. The six potentially duplicative investments at HHS include four investments that support enterprise information security and two for Medicare coverage determination, according to GAO.

"With so much money on the line, it is critical that our government agencies are doing everything possible to save taxpayer money," Sen. Tom Carper (D-Del.), chairman of the Senate's Homeland Security Committee, said in a statement. "An important part of this effort is to ensure that we are not investing in programs that unnecessarily overlap or are duplicative."

In January 2013, GAO, the Council of the Inspectors General on Integrity and Efficiency, and the Recovery Accountability and Transparency Board convened a forum with the purpose of exploring ways in which oversight and law enforcement agencies use data analytics to assist in the prevention and detection of fraud, waste, and abuse, as well as identifying the most-significant challenges to realizing the potential of data analytics and actions that the government can take to address these challenges. HHS OIG played a significant role in helping plan and conduct this forum.

The report summarizes the key themes that emerged from the discussion in the forum. Specifically, the report discusses the challenges and opportunities in (1) accessing and using data and (2) sharing data. In addition, participants identified next steps to address these challenges and capitalize on opportunities.

Though participants pointed to the Center for Medicare & Medicaid Services' (CMS) Fraud Prevention System as an example of harnessing data through predictive modeling and other analytics, the report says of government efforts overall, that "despite these efforts, the path to capitalizing on the potential of data analytics is not a clear one."

Participants said they're not always aware of all the data sources available for addressing fraud, that they'd like to see a database of known offenders and also pointed out that government program offices lack incentives to develop IT systems useful in oversight efforts, reported FierceHealthIT. They cited other challenges including:

  • An overwhelming amount of available data and difficulties setting priorities
  • The various legal implications of owning and maintaining data, including an array of regulations such as Freedom of Information Act disclosure requirements, HIPAA and others
  • Difficulty measuring the success of analytics programs

Participants also said that federal and state government agencies are not working from a single set of data standards, which makes integrating systems and interpreting the various data elements difficult. Among the lessons learned, participants said that:

  • Having analytics tools isn't enough; it's crucial to have well-trained staff to perform data analysis, identify high-quality investigative leads and areas of greatest risk
  • Building support for analytics from top management down also is essential
  • Data and analytics operations must be consolidated into one location to enhance effectiveness and return on investment
  • Parties responsible for retaining and maintaining databases must be identified to ensure proper safeguards are in place to protect privacy

The forum proposed actions including:

  • Addressing statutory challenges related to data access and use
  • Developing an ongoing community of practice focused on data-sharing challenges
  • Compiling a library of available open-source data analytics, modules, and tools

HHS officials disagreed that its information security investments were duplicative, but nonetheless plan to review them this month to "identify opportunities for consolidation." As for the Medicare coverage determination investments? HHS officials noted that they have "consolidated several functions but could not provide documented justification for why the other functions were not consolidated."


December 27, 2013

The Discrediting OTC Ads – Articles Include Potentially Misleading Claims

A recent study published in the Journal of General Internal Medicine found that as many as "six out of 10 pharmaceutical ads" contain "potentially misleading claims." The objective of the study was to compare claims in direct-to-consumer (DTC) television advertising with the FDA approved labeling in order to evaluate the frequency of false or misleading ads.

The United States is one of the only countries in the world that allows drug companies to directly advertised to patients or consumers through basically any medium—television, magazine, newspaper, etc. However, we recently reported that advertisements online and through social media have been a difficult and uncertain area for companies to advertise due to the lack of guidance and clarity from FDA on the issue.

To conduct the study, the authors analyzed a cross-section of TV ads for prescription and nonprescription drugs aired from 2008 through 2010 on ABC, CBS, NBC and CNN broadcasts. The researchers looked only at ads between 6:30 and 7:00 pm EST.

It should be noted that advertisements of any kind for nonprescription drugs (e.g., over-the-counter) are regulated by the Federal Trade Commission (FTC) not the FDA—however, FDA and FTC have a close working agreement to determine whether a nonprescription drug ad may be making an improper claim.

For each advertisement, the most-emphasized claim in each ad was identified based on claim iteration, mode of communication, duration and placement. This claim was then compared to evidence by trained coders, and categorized as being objectively true, potentially misleading, or false. Potentially misleading claims omitted important information, exaggerated information, made lifestyle associations, or expressed opinions. False claims were factually false or unsubstantiated.

Of the most emphasized claims in prescription (n = 84) and nonprescription (n  = 84) drug advertisements, 33 % were objectively true, 57 % were potentially misleading and 10 % were false. In prescription drug ads, there were more objectively true claims (43 %) and fewer false claims (2 %) than in nonprescription drug ads (23 % objectively true, 7 % false). There were similar numbers of potentially misleading claims in prescription (55 %) and nonprescription (61 %) drug ads.

The researchers said there were some limitations in the study method: the sample was drawn from a 30-minute period of the TV broadcast day on four major networks, and does not represent all ads on TV.  Also, they only analyzed what they determined as the most-emphasized claim in each advertisement and the coders need to interpret the meaning of claims to facilitate analysis, which did introduce subjectivity. For example, they categorized a Levitra ad as offering opinion, but no facts, when an actor said: "Levitra works for me. Maybe it can work for you." And a Prevacid ad offered "minimal facts" for boasting that "nothing works better" when superiority is not true.

The problem with this study is that it attempts to undermine the regulatory authority of FDA. All drug companies are required to submit any and all types of drug advertisements, especially TV commercials, to FDA prior to running such ads. Such advertisements are submitted to FDA with the drug application and are approved along with the drug if and when the product is approved.

While in the past, drug companies have run their TV ads without waiting for comments or a regulatory decision from FDA, the agency heavily regulates and monitors TV ads. In fact, we recently posted a summary of the various Warning and Untitled letters that FDA's Office of Prescription Drug Promotion (OPDP) sends to drug companies for improper advertising or promotion.

Consequently, because the authors selected commercials between 2008 and 2010, it is likely that some of the TV ads they selected were in fact ads that received regulatory letters from FDA that required the company to take down or change the commercial. However, FDA does not have the resources to handle every TV ad that comes across its desk and occasionally an ad may be broadcast that has improper information, and that is why FDA has the authority to issue a regulatory letter demanding a company correct such ads.

In addition, it is unclear exactly how the authors of this study determined an advertisement was "misleading." The authors noted that an ad would be "potentially misleading" if it

  • omitted important information,
  • exaggerated information,
  • made lifestyle associations, or
  • expressed opinions

What do the authors consider to be "important?" Is it the same type of importance as a patient would want to know or the FDA or both? What is an "exaggeration?" Why is a lifestyle association "misleading" when many diseases we see commercials for greatly affect lifestyles such as Crohn's disease, depression, skin diseases, and other illnesses? If you had trouble going to the bathroom frequently or were insecure about your physical appearance, wouldn't you want to know that a drug might help resolve those problems so you can actually leave your home with confidence?

Trained researchers and experts in health policy have their own biases and are well trained to identify information that the average patient and consumer would not identify as misleading. DTC ads are meant to educate patients about diseases, symptoms and possible conditions that may be untreated or undertreated.

No patient is convinced of the need for a drug or treatment from a DTC ad alone. Rather, DTC ads help patients—particularly with diseases that used to have stigma such as HIV or depression—discuss their problems with doctors when they might not have. More importantly, doctors also see these ads and are familiar with the influence they may have over patients and would not risk their practice, their license or the health of a patient solely from a DTC ad.

Ultimately, it is best for the FDA to determine what DTC ads are potentially misleading and for the agency to continue its oversight and enforcement through review. The use of this kind of potentially misleading research to scare patients away from DTC ads will only add to their confusion about complex and complicated diseases and illness when companies are simply trying to educate them to speak with their physician about choices and options.


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