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26 posts from May 2015

May 29, 2015

OIG Releases Mid-Year 2015 Work Plan, Includes New Provisions Related to Open Payments Oversight and Scrutiny into Clinical Laboratory Payments

Oig workplan

Yesterday evening the Department of Health and Human Services (HHS) Office of Inspector General (OIG) released their Work Plan Mid-Year Update for fiscal year (FY) 2015, which summarizes new and ongoing reviews and activities that OIG plans to pursue. A number of new terms find its way into the mid-year plan, including a provision related to OIG’s anticipated oversight of the Open Payments program, as well as a provision stating that OIG will analyze CMS payments to the top 25 clinical diagnostic laboratories.

View the Work Plan here.

The OIG’s job is to detect fraud, waste, and abuse; identify opportunities to improve healthcare program economy; and to hold “accountable those who do not meet program requirements or who violate Federal health care laws.” The OIG conducts audits and investigation, and can impose civil monetary penalties where appropriate, so their Work Plan is often of great interest to those working with Federal healthcare programs. As a summary of some of the OIG’s enforcement initiatives, the Work Plan can serve as a useful resource for companies in planning internal audits and in training. 

We have highlighted two new provisions in this year's plan.

New: Review of financial interests reported under the Open Payments Program

We will determine the number and nature of financial interests that were reported to CMS under the Open Payments Program. We will also determine the extent to which CMS oversees manufacturers’ and group purchasing organizations’ (GPOs’) compliance with data reporting requirements and whether the required data for physician and teaching hospital payments is accurately and completely displayed in the publicly available database. The Affordable Care Act, § 6002, requires that manufacturers disclose to CMS payments made to physicians and teaching hospitals. Manufacturers and GPOs must also report ownership and investment interests held by physicians. The Open Payments Program provides public transparency about provider-industry relationships; it is important that the information be complete and accurate to serve the needs of consumers making educated decisions about their health care choices. (OEI; 03-15-00220; expected issue date: FY 2016).

It will be interesting to follow OIG's oversight of the Open Payments program, and any potential enforcement actions that may follow. Specifically, it will be important to see whether OIG ties reported Open Payments data into other aspects of their oversight, including fraud and abuse laws, and how the agency reconciles potential missing and/or inaccurate data in the system. 

NEW: Annual analysis of Medicare clinical laboratory payments

We will analyze Medicare payments for clinical diagnostic laboratory tests, including the top 25 clinical diagnostic laboratory tests by Medicare expenditures in 2014. Previous OIG work has found that Medicare pays more than other insurers for certain high-volume and high-expenditure laboratory tests. Section 216 of the Protecting Access to Medicare Act of 2014 requires new Medicare payment rates for laboratory tests beginning in 2017 based on private payer rates and establishes processes for determining initial payments for new laboratory tests. Pursuant to a requirement of the Protecting Access to Medicare Act, OIG will conduct an annual analysis and monitor Medicare expenditures and the new payment system for laboratory tests. (OEI; 09-15- 00210; expected issue date: FY 2016)

As we have noted in a number of articles, referral arrangements between laboratories and physicians have received a fair amount of scrutiny in recent months. This includes Health Diagnostics Laboratory paying $47 million and entering a Corporate Integrity Agreement with OIG as a result of alleged kickbacks related to lab referrals. OIG’s inclusion of a new analysis of Medicare clinical laboratory payments in its Work Plan seems to indicate further interest.

OIG added the following new provisions to its Work Plan:

  • Intensity-modulated radiation therapy
  • Hospital preparedness and response to high-risk infectious diseases
  • Access to durable medical equipment in competitive bidding areas
  • Annual analysis of Medicare clinical laboratory payments
  • Inpatient rehabilitation facility payment system requirements
  • Use of electronic health records to support care coordination through ACOs
  • Part D oversight portfolio
  • Billing trends for Part D drugs and commonly abuse opioids
  • Manufacturer rebates - Federal share of rebates
  • Analyses of generic price increases compared to price index
  • Treatment of authorized generic drugs
  • Completeness of data in Transformed Medicaid Statistical Information System: early implementation
  • CDC- Award process for Ebola preparedness and response funding
  • FDA - FDA's monitoring of imported food recalls
  • HRSA - State agency oversight of HRSA Maternal, Infant, and Early Childhood Home Visiting grants
  • A Review of the National Institute of Environmental Health Sciences' Funding for Bisphenol A safety research
  • Grantee's use of President's Emergency Plans for AIDS Relief funds
  • Foster care- monitoring the health and safety of children through the complaint resolution and licensing process
  • States'CCDF payments rates and access to childcare services
  • CCDF-Licensing and oversight of health and safety standards at Federally funded facilities 
  • Review of financial interests reported under the Open Payments Program


View the Mid-Year 2015 Work Plan

View the 2015 Work Plan

View the 2014 Work Plan


May 28, 2015

Supreme Court Passes on Challenge to Alameda's Drug Disposal Ordinance; California Counties Are Lined Up with Similar Initiatives

Dispose unused rx

The Supreme Court has declined to hear a challenge to Alameda County’s Drug Disposal Ordinance. The Court’s decision upholds the Ninth Circuit’s opinion, which found that the Ordinance—requiring pharmaceutical manufacturers to fund drug take-back programs in the County—did not interfere with interstate commerce or discriminate against out-of-state drugmakers. While the Supreme Court’s choice to pass on the decision is not too surprising given that the Ninth Circuit is the first to consider the Ordinance's Constitutionality—and hence there being no Circuit-split—the Ordinance is already in full swing in a number of different places.

For example, San Francisco has been sending reminders to drug wholesalers licensed by the CA Board of Pharmacy about their responsibilities under the San Francisco Safe Drug Disposal Stewardship Ordinance. Specifically, wholesalers must provide the city with a list of manufacturers of drugs. Using these lists, San Francisco will notify the manufacturers about their obligations to fund programs to collect and properly dispose of unwanted medicine.  Download San Francisco Letter to Drug Wholesalers

Four counties including Alameda have adopted drug disposal ordinances, and two more have introduced them.


The California Product Stewardship Council notes that an estimated 10 to 33 percent of prescribed medicines are not consumed. “With a lack of safe and secure disposal options, consumers traditionally have had the option of trashing, flushing or storing these medicines in the home,” they state. “Numerous studies have documented the widespread consequences of improperly stored and disposed medicines, including the impacts on water quality and public health.”

The solution a number of counties have landed on is “Extended Producer Responsibility,” which requires pharmaceutical manufacturers and others in the product chain to “design, manage and fund take-back programs to securely collect unwanted medicines and sometimes their packaging from the public and ensure the collected materials are properly managed.”

On June 24, 2012, Alameda County adopted the Safe Drug Disposal Ordinance and became the first place in the nation to require pharmaceutical companies to fund the collection and disposal of unused medications from the public. Under the Ordinance, manufacturers must set up disposal kiosk sites throughout Alameda, which consist of disposal bins located in areas “convenient and adequate to serve the [disposal] needs of Alameda County residents.” Manufacturers must also promote the stewardship program to the public through educational and outreach materials. After collection, manufacturers must arrange to destroy the unused prescription drugs at medical waste facilities.

Other counties followed suit, including:



Following Alameda’s adoption of the drug take back program, several industry trade groups, including PhRMA, BIO, and GPhA, challenged the ordinance in court, arguing the ordinance burdens interstate commerce and discriminates against out-of-state companies by shifting costs to counties and states outside of Alameda. Chief Counsel with the Washington Legal Foundation, Richard Semp, a strong opponent of the drug disposal law, noted that the ordinance forces others to pay for something that should be paid for locally. “If Alameda County is permitted to evade the cost of collecting unused pharmaceuticals, then other jurisdictions will take similar steps,” he states. “Local governments have little incentive to impose costs prudently on interstate commerce when their citizens will not bear those costs, but enforcing the dormant Commerce Clause prevents such mischief.”

Pharmaceutical companies lost at District Court and again at the Ninth Circuit. Ninth Circuit Judge N.R. Smith held that the Ordinance is not discriminatory because it “applies to all manufacturers that make their drugs available in Alameda County—without respect to the geographic location of the manufacturer.” He notes that “[e]ven if one of the manufacturers represented by Plaintiffs were to close all of its production facilities, open a single production facility in Alameda County, and limit the sale of its products to intra-county commerce, the Ordinance would still apply to that manufacturer.”

View: PhRMA et. al.  v. County of Alameda, 9th Circuit Opinion

Furthermore, Judge Smith rejected the argument that the purpose of the Ordinance is “merely to shift costs away from the county and onto the manufacturers.” PhRMA and the industry groups noted that because Alameda County could run a drug disposal program that “would achieve precisely the same effects” as the program mandated by the Ordinance, the Ordinance “yields no public benefits.”  Judge Smith stated: “The fact that the county could run a similar program does not nullify the program’s benefits… even if the Ordinance did nothing other than save the county money, that is not equivalent to ‘no public benefits.’”

The trade groups appealed the Ninth Circuit decision to the Supreme Court, but on May 26, the Supreme Court denied the petition.

Pending Ordinances

Two more California counties have introduced similar models of pharmaceutical-funded drug disposal programs. View the California Product Stewardship Council's website for comprehensive updates on various take-back programs. 

Santa Barbara County, California

  • Press – County Looks to Big Pharma to Fund Drug Take Back, Kelsey Brugger, Santa Barbara Independent, 5/20/15
  • 5/19/15 – Hearing held at County of Santa Barbara Board of Supervisors Meeting to receive staff report on unused pharmaceuticals and vote on beginning the medicine stakeholder process. The Board voted unanimously to authorize the Director of the Public Health Department to conduct stakeholder outreach, in collaboration with the Third District office and Public Works Department, and return in October 2015 with a recommendation for establishment of a permanent and sustainably funded model to collect and safely dispose of unwanted medications from residents in Santa Barbara County.

Santa Clara County, California

  • 5/19/15 – Ordinance introduced at County of Santa Clara Board of Supervisors Meeting and passed by a 3-0 vote with two Supervisors recusing themselves due to pharmaceutical investments.
  • County of Santa Clara Board of Supervisors Meeting 5/19/15 – Meeting video, County of Santa Clara Board of Supervisors, 5/19/15 (Ordinance discussion begins at 3:47:20)

May 27, 2015

Doctor Involved in Physician-Owned Distributorship Pleads Guilty To Kickback Violations and Unnecessary Surgeries; Marks First POD-Specific Enforcement Action

Spinal implants

Physician-owned distributorships (PODs), which are medical device distributors owned, at least in part, by physicians who use the devices, have attracted scrutiny from Congress and the HHS-OIG for several years. However, it was not until September of 2014 when the Department of Justice got involved by suing Reliance Medical Systems over an alleged kickback scheme involving PODs, whereby physician investors would be paid essentially based on the number of Reliance spinal implants they used. On May 22, one of the neurosurgeons named in the complaint, Dr. Aria Sabit, admitted that the financial incentives provided by the PODs "caused him to compromise his medical judgment and cause serious bodily injury to his patients by performing medically unnecessary spine surgeries on some of the patients in whom he implanted [the] spinal implant devices," states DOJ

A 2011 Congressional report entitled Physician Owned Distributors (PODs): An Overview of Key Issues and Potential Areas for Congressional Oversight stated that “[t]he very nature of PODs seem to create financial incentives for physician investors to use those devices that give them the greatest financial return and that, in the process, patient treatment decisions may be based on personal financial gain." In 2013, the HHS-OIG issued a Special Fraud Alert specifically targeting physician-owned entities as well, stating that PODs “are inherently suspicious under the anti-kickback statute.” 

Thus, the industry has been on alert that PODs are an area of enforcement interest, and last year spinal implant company Reliance Medical Systems was the first to be hit with a complaint from the Department of Justice. The DOJ alleged that Reliance's owners created more than a dozen physician-owned distributorships that sold Reliance's spinal implants to physician-owners for use in surgery. The government alleged that Reliance used one of its distributorships, Apex Medical, to funnel improper payments to Dr. Sabit for using Reliance spinal implants in his surgeries.

"Apex was owned by another neurosurgeon and three non-physicians who operated Apex as a physician-owned distributorship and paid neurosurgeons lucrative illegal kickbacks tied directly to the volume and complexity of the surgeries that the surgeons performed, and the number of Apex spinal implant devices the surgeons used in their spine surgeries," states DOJ. "In exchange for the opportunity to invest in Apex and share in its profits, Sabit admitted that he agreed to convince his hospital to buy spinal implant devices from Apex and use a sufficient number of Apex spinal implant devices in his spine surgeries."

Specific facts in this case also put Reliance in a bad light, including recorded statements by the company’s owners telling potential physician investors that Reliance was formed as part of a plan to “get around” the federal Anti-Kickback statute, and that Reliance pays its physician-investors enough in the first month or two to “put their kids through college.”

According to the DOJ, Sabit began using Reliance implants on his patients only after he acquired an ownership interest in Apex and started receiving payments from the sale of Reliance’s spinal implants.  Apex allegedly paid Sabit $438,570 between May 2010 and July 2012, during which time Sabit used Reliance implants in approximately 90 percent of his spinal fusion surgeries.  The government also alleged that these payments caused Sabit to perform medically unnecessary or excessive surgeries on certain patients who did not need the spinal implants. 

Sabit admitted that his involvement with the POD, Apex, led him to compromise his medical judgment and harm patients by performing medically unnecessary spine surgeries and using more implant devices than needed. The DOJ states that he also admitted to referring patients for more complex surgeries, such as multi-level spine fusion, that they did not need.

Reliance and Dr. Sabit have been a target for a number of year now. CBS News ran a story in 2013 that focused on a wrongful death suit against Sabit, and scrutinized his financial relationship with Apex--the supplier of the device that allegedly caused the patient harm. 

On November 5, 2014, the District Court of California denied Reliance Medical’s motion to dismiss the DOJ’s complaint. Download Reliance's Motion to Dismiss Denied

In addition to the charges related to Apex and Reliance, Sabit admitted to a number of fraudulent billing patterns. "Sabit admitted that he derived significant profits by convincing patients to undergo spinal fusion surgeries with instrumentation (meaning specific medical devices designed to stabilize and strengthen the spine), which he never rendered, and subsequently billing public and private healthcare benefit programs for those fraudulent services," DOJ states. "Sabit further admitted he operated on patients and dictated in his operative reports—that he knew would later be used to support his fraudulent insurance claims—that he had performed spinal fusion with instrumentation, which he never performed."

A sentencing hearing is scheduled for Sabit on Sept. 15, 2015.



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