Patient Protection and Affordable Care Act mandated health insurance reform

Presenters:
Stephen Kleinman, Schottenstein Zox and Dunn, Partner, Health Care Practice Group
Robert Cochran, Schottenstein Zox and Dunn, Of Counsel, Health Care Practice Group

The Patient Protection and Affordable Care Act (PPAC) is anticipated to expand insurance coverage to 32 million people. As a result, the specific legislative changes discussed in this podcast will impact millions of Americans and the way health insurance companies do business. Listen as Steve and Bob discuss these changes.

This podcast is part of the Law Firm Alliance – 2010 Health Care Reform podcast series, which can be accessed in its entirety by clicking here.

NIH Approves First Human Embryonic Stem Cell Lines under New NIH Guidelines

The National Institutes of Health, a component of the U.S. Department of Health and Human Services, approved the first human embryonic stem cell lines under the new NIH Guidelines for Human Stem Cell Research. According to the NIH's press release, the NIH has approved 13 lines and an additional 92 lines are awaiting the NIH's review.

The NIH Guidelines were released on July 7, 2009 to implement President Barack Obama's executive order issued earlier in the year that removed the limitations on the use of federal funds for human stem cell research. The limitations had been established through an executive order issued by President George W. Bush in 2001.

For more information on President Obama's executive order and its impact on stem cell research, please see SZD's article "Campaign ‘08 and the Obama Administration’s Rejuvenation of Stem Cell Research" as published in Life Sciences, A Publication of the American Health Lawyers Association.

House Passes SGR Reform Bill

On November 19, 2009, the House of Representatives passed the Medicare Physician Payment Reform Act of 2009 ("H.R. 3961"). The bill reforms the Medicare physician payment formula, called the Sustainable Growth Rate ("SGR"). Under the current formula, Medicare payment rates for physicians' services will be cut by about 21 percent in 2010 and additional cuts would occur annually.

The Congressional Budget Office ("CBO") summarized H.R. 3961's changes to the SGR as follows:

  • The update for 2010 would be the percentage increase in the Medicare economic index (MEI), which is 1.2 percent, as specified in the final rule.
  • Beginning in 2011, there would be separate target growth rates and conversion factor updates for two categories of service: evaluation, management, and preventive services, and all other services.
  • The new SGR formula would take into account spending for each category of service since 2009 or—beginning in 2014—for the past five years. (The current SGR formula takes into account spending since 1996.)
  • Finally, only physician services, and not other services provided incident to the physician visit (such as laboratory services), would be counted in each category.

As noted above, consistent with the Centers for Medicare and Medicaid final rule for the 2010 physician fee schedule (publication date: November 25, 2009), H.R. 3961 amends 42 U.S.C. 1395w–4(d)(4)(A) to eliminate the discretion of the Secretary of the Department of Health and Human Services to include physician-administered drugs within the definition of "physicians' services" for the purposes of SGR calculations. Physicians' services are currently defined to include:

"other items and services (such as clinical diagnostic laboratory tests and radiology services), specified by the Secretary, that are commonly performed or furnished by a physician or in a physician's office, but does not include services furnished to a Medicare+Choice plan enrollee." (emphasis added)

Under the proposed definition, such services would be defined to include only:

"other items and services for which payment under this part is made under the fee schedule under this section, for services for practitioners described in section 1842(b)(18)(C) on a basis related to such fee schedule, or for services described in section 1861(p) (other than such services when furnished in the facility of a provider of services), but does not include services furnished to a Medicare+Choice plan enrollee." (emphasis added)

The CBO estimated that H.R. 3961 would increase physician payments over the next 10 years by about $195 billion.

H.R. 3961 was received in the Senate on November 20, 2009.

Senate Releases a Health Insurance Reform Bill

On November 18, 2009, the Senate released a draft health insurance reform bill, entitled the "Patient Protection and Affordable Care Act."  Like the House bill, the Senate's bill proposes to establish Exchanges, or marketplaces for individuals to shop for insurance when insurance is not available through their employers. The bill contains a public option (referred to in the Senate's bill as the "community health insurance option") but differs from the House bill in that it permits states to "opt out" or prohibit that state's Exchange from offering a community health insurance option.  This bill will expand Medicaid coverage for those people earning less than 133% of the federal poverty line and will provide subsidies for the purchase of health insurance for people earning less than 400% of the FPL.

The Senate's bill stops short of the House's proposed ban on public health insurance options providing coverage of abortion services but it does prohibit the use of federal funds for abortion services.

To pay for some of the costs of the bill, the bill proposes an excise tax on high cost employer-sponsored health coverage (i.e., plans worth $8,500 for individuals and $23,000 for families).  The bill also proposes a tax on elective cosmetic surgeries and an increased hospital insurance tax on high-income taxpayers that would increase the Medicare deduction from 1.45% to 1.95% for incomes over $200,000 for individuals and $250,000 for couples.

Senate Finance Committee Approves Health Care Reform Legislation

The Senate Finance Committee has approved its health care reform legislation, entitled "America's Healthy Future Act." This legislation will now have to be merged with the version approved by the Senate Committee on Health, Education, Labor and Pensions (the "HELP Committee").

The two bills share many common concepts, such as penalties for individuals who fail to obtain health insurance, expansion of Medicare and requirements for insurance plans that, for example, include prohibitions on exclusions for pre-existing conditions.

However, the Finance Committee's version differs from the HELP Committee's in some significant ways. First, the Finance Committee's version does not establish a government-run health insurance plan, commonly referred to as a "public option," that would compete in the health insurance exchanges with private health insurance plans. Second, it does not mandate employers to provide health insurance. Third, it proposes different methods for financing the cost of the legislation. For example, the Finance Committee's version proposes assessing fees on pharmaceutical manufacturing companies ($2.3 billion), medical device manufacturers ($4 billion), health insurance providers ($6 billion), and clinical laboratories ($750 million).

Senate Finance Committee's Proposals for Health Care Reform

Senate Finance Committee Chairman Max Baucus has been reported as circulating to members of the committee a document entitled "Framework for Comprehensive Health Reform."

The Framework represents "many of the policies" discussed by the committee but is "not a final product . . . and does not include everything that might be in the [Chairman's Mark]." It most notably does not include a public insurance option. Rather, it proposes a Consumer Operated and Orientated Plan (CO-OP) program to create nonprofit, member-run health insurance companies that service individuals in one or more states.

Also, it does not propose an employer mandate. However, as discussed below, while there is no employer mandate, certain employers may be fined for not providing health insurance coverage.

Some other highlights of the document include:

  • Penalizing US citizens and legal residents who fail to obtain health insurance coverage up to $3,800 per year.
  • Fining employers with more than 50 full-time employees (30 hours and above) that do not offer health insurance coverage to their employees up to $400 annually for each employee who receives a tax credit for health insurance through an exchange.
  • Establishing state-based exchanges to assist individuals and small groups to more easily compare health insurance plan benefits and premium costs for four benefit options that would be available.
  • Permitting health insurance premiums to vary based on only four factors: tobacco use, age, family composition and geographic differences.
  • Prohibiting health insurance plans in the individual market from excluding coverage for pre-existing health conditions or rescinding health coverage.
  • Levying an excise tax of 35% on insurance companies and insurance administrators for any health insurance plan that is above $8,000 for singles and $21,000 for family plans.
  • Assessing fees that would be generally allocated by market share on pharmaceutical manufacturing companies ($2.3 billion), medical device manufacturers ($4 billion), health insurance providers ($6 billion), and clinical laboratories ($750 million).
  • Permitting states to form "health care choice compacts" between two or more states to allow the purchase of non-group health insurance across state lines.
  • Expanding Medicaid coverage to include individuals who are not currently eligible (e.g., non-elderly individuals (childless adults) at or below 133% of poverty).
  • Reducing a state's allotment for Medicaid Disproportionate Share Hospital Payments by 50% once the number of uninsured individuals in the state is reduced by 50%.

 

Obama Asks Federal Agencies to Review Preemption

President Obama recently ordered federal agencies to perform a comprehensive review of all regulations released in the past ten years to determine if federal "preemption" was improperly implemented in any of these regulations. 

President Obama's order represents yet another major departure from the policies/philosophy of the Bush Administration.  The Bush Administration encouraged federal agencies to add preemption language to their respective regulations.  This position was grounded in the policy that plaintiffs were being given too many opportunities to circumvent federal laws and bring state law tort claims against corporations. 

Although "next step" guidance has yet to be provided to federal agencies, and specific industries have yet to be fingered as prime offenders, the Obama order could have a significant impact on the life sciences industry. 

This order comes on the heels of the Supreme Court's decision in Wyeth v. Levine, where the Supreme Court determined that state law tort claims against pharmaceutical companies were not preempted by FDA approval of those companies' drugs.  The Obama order may have the effect of widening the gateway provided by the Supreme Court to sue pharma companies, and may further have the effect of opening the gateway against medical device companies and other players in the industry. 

This Life Sciences segment of the SZDHealthLawScan has kept a close eye on preemption cases in the industry, and we will provide ample commentary on the effects of President Obama's recent order. 

Vioxx Class Action Denied in California

Merck & Co. claimed victory in California recently, as Judge Victoria Cheney rejected a proposed class action suit against the drug manufacturer for the ill effects of its Vioxx product.  Merck, presently defending lawsuits across the globe for Vioxx, was spared from what could have been billions in liability exposure in California.  

Judge Cheney stated that the patients who consumed Vioxx had too many differences, including medical histories and the length of time each patient took the drug, in order to sue jointly.  Judge Cheney's ruling comes on the heels of another class action denial in Vioxx litigation in New Jersey.  With the fervor over the injuries caused by Vioxx still high, one can only speculate if there will be similar such decisions in the near future. 

H.R. 1346 May Overturn Riegel v. Medtronic

House Energy and Commerce Committee's Health Subcommittee held hearings on May 12, 2009 that could lead to the overturning of the Supreme Court decision in Riegel v. Medtronic, Inc., which established that state law tort claims against medical device manufacturers are expressly preempted by federal law.

The hearings are the first step in the legislative process for H.R. 1346, known as the Medical Device Safety Act of 2009. This bill would amend 21 U.S.C. § 360k by adding a new subsection (c) that, as proposed to the subcommittee, reads, "No Effect on Liability Under State Law- Nothing in this section shall be construed to modify or otherwise affect any action for damages or the liability of any person under the law of any State."

Currently, subject to a few exemptions, Section 360k(a) prohibits states from establishing or continuing "in effect with respect to a device intended for human use any requirement – (1) which is different from, or in addition to, any requirement applicable under this chapter to the device, and (2) which relates to the safety or effectiveness of the device or to any other matter included in a requirement applicable to the device under this chapter."

Based on its interpretation of Section 360k, the Supreme Court in Riegel held that the Food and Drug Administration's (FDA) pre-market approval process for medical devices preempted state law tort claims against medical device manufacturers.

Now, H.R. 1346 seeks to overturn the Riegel decision by incorporating language into Section 360k that parallels the language contained in another preemption statute that the Supreme Court has already acknowledged as preserving states' product liability actions.  According to the Supreme Court in Wyeth v. Levine, Section 379r of Title 21 of the United States Code preempts "certain state requirements concerning over-the-counter medications and cosmetics but expressly preserved product liability actions." Section 379r parallels Section 360k by also prohibiting states from establishing or continuing a requirement that is "different from, in addition to, or that is otherwise not identical with," a requirement established under a number of enumerated federal statutes. However, unlike Section 360k, Section 379r preserves certain state law claims with language that is almost identical to that of H.R. 1346: "Nothing in this section shall be construed to modify or otherwise affect any action or the liability of any person under the product liability law of any State."

Therefore, should H.R. 1346 become law, it would lay the foundation for overturning Riegel v. Medtronic. As a result, medical device manufacturers would once again join pharmaceutical drug manufacturers, which recently lost their own argument for preemption, in facing state law tort claims. See also, "The Supreme Court Decides Wyeth v. Levine" on the Supreme Court's decision that the FDA's pre-market approval of pharmaceutical drugs does not preempt state law tort claims.

President Obama's Executive Order Establishes White House Office of Health Reform

On April 8, 2009, President Obama signed an executive order establishing a White House Office of Health Reform (OHR) that will spearhead the Obama Administration's policy agenda for health care. The principal functions of the OHR include providing leadership for and coordinating the development of the Administration's agenda; working with Congress, various executive departments and agencies, and State, local and community policymakers and public officials; and monitoring the implementation of the agenda.  If requested by the OHR Director, executive departments and agencies are required to designate a liaison to work with the OHR.

The executive order also requires the Secretary of Health and Human Services to establish its own Office of Health Reform within the Department of Health and Human Services to coordinate closely with its White House counterpart.

President Obama has appointed Nancy Ann Min DeParle as the first Director of the OHR. During the Clinton Administration, DeParle served as the Associate Director for Health and Personnel at the White House Office of Management and Budget and as the Administrator of the Health Care Financing Administration, which is now the Centers for Medicare and Medicaid. Before joining the Clinton Administration, she served as the Tennessee Commissioner of Human Services and worked as a lawyer for a law firm in Tennessee. Since leaving the Clinton Administration, DeParle is reported to have served on the board of directors of various medical device companies, such as Boston Scientific and MedCo.

The Supreme Court Decides Wyeth v. Levine

On March 4, 2009, in Wyeth v. Levine, No. 06-1249, the United States Supreme Court upheld, by a 6-3 vote, the Vermont Supreme Court's holding in favor of a patient who argued that the Food and Drug Administration's (FDA) approval of a pharmaceutical drug's label warnings did not impliedly preempt state failure-to-warn claims.

The Plaintiff, Diana Levine, sued Wyeth, the manufacturer of a drug that a physician's assistant had incorrectly administered causing gangrene to develop in her arm. While the drug's label contained warnings about certain techniques related to the methods of administration, the physician's assistant had used an FDA-approved method. Levine asserted state failure-to-warn claims arguing that the FDA-approved label warnings inadequately warned about the dangers associated with the particular method the physician's assistant had used. A Vermont state court denied Wyeth's motion for summary judgment asserting that federal law preempted the state law claims, and a jury found for Levine. After the Vermont Supreme Court affirmed, the United States Supreme Court granted Wyeth's petition for certiorari.

Writing for the majority, Justice John Paul Stevens rejected Wyeth's two major arguments. Wyeth first argued that the state claims were preempted because it was impossible for a drug manufacturer to comply with both the state law and the federal labeling duties. Wyeth claimed that only the FDA could change the labels. However, Stevens concluded that the "changes being effected" (CBE) regulation provided Wyeth with the means to satisfy both the state and federal duties because the CBE regulations permitted Wyeth to unilaterally add a stronger warning about IV-push administration without prior FDA approval.

Wyeth also argued that compliance with a state-law duty to provide a stronger warning about IV-push administration would obstruct the purposes and objectives of federal drug labeling regulation, which Wyeth unsuccessfully argued, was to leave such decisions to the FDA, an "expert agency." However, Stevens focused on the lack of a federal remedy for consumers harmed by inadequate warnings and the lack of an express preemption provision. He then concluded, "Evidently, [Congress] determined that widely available state rights of action provided appropriate relief for injured consumers."

In rejecting Wyeth's second argument, Stevens dismissed similar Bush Administration arguments from the FDA and the Department of Justice (DOJ). In addressing the FDA's claim of preemption in its 2006 preamble, which the Court saw as "revers[ing] the FDA's own longstanding position, Stevens wrote that the claim "does not merit deference" because it lacked "thoroughness, consistency, and persuasiveness." Likewise, in a footnote, Stevens dismissed the DOJ's amicus brief as "similarly undeserving of deference." Instead, he deferred to tradition: "it appears that the FDA traditionally regarded state law as a complementary form of drug regulation."

Writing for the dissent, Justice Samuel Alito argued that juries are "ill-equipped" to perform the FDA's role in deciding whether a prescription drug's label is adequate. Additionally, while Alito also did not defer to the FDA's 2006 preamble, he did defer to the FDA's labeling decisions. He argued that the only relevant question was whether the "State had upset the regulatory balance struck by the federal agency." As precedent for this proposition, Alito looked to the Court's decision in Geier v. American Honda Motor Co., 529 U. S. 861 (2000), which he concluded "compels" the preemption of state law in the present case. There, the Department of Transportation (DOT) had permitted car manufacturers to choose from a "menu" of passive restraints in cars. As a result, a plaintiff's state law claim against a car manufacturer for not choosing a certain passive restraint was preempted because it would upset the balance of DOT's regulatory scheme. Alito analogized this menu of passive restraints to the drug label's options for methods of administration. As in Geier, where DOT concluded that the menu options were safe, so too the FDA had decided, through its labeling decisions, that the drug label's options were safe and Levine's state law claims should be preempted.

Stimulus Bill Creates Comparative Effectiveness Research Team

The recently passed economic stimulus bill will create a 15 person research council to compare the efficacy of different treatments for the same illness.  According to an article in the New York Times published last week, the program "responds to growing concerns that doctors have little or no solid evidence of the value of many treatments."  The inclusion of comparative effectiveness research in the stimulus bill should, according to supporters, curb the costs of health care in the long-run, as it will discourage patients and providers from using less effective, but very costly treatments.  Reaction from major players in the life sciences community will surely be mixed.  If the council is successful, its findings may result in a windfall for some companies, but may have the opposite effect for those companies whose treatments are dubbed "less effective."

FDA Issues Guidance Regarding Participant Withdrawal From Research Studies

The FDA recently issued guidance regarding participant withdrawal from human subjects research studies.  The guidance, intended for clinical investigators, sponsors, and institutional review boards, articulates the FDA's already longstanding policy that data accrued from a study participant prior to that participant's withdrawal should remain part of the study data.  The FDA, in formulating this guidance, cited its concern that to permit otherwise, i.e. to allow for the deletion of a withdrawn participant's data, would undermine the scientific validity and ethical integrity of human subjects research studies.

This FDA guidance, available here, does not establish legally enforceable responsibilities.  Rather, the guidance represents the FDA's current thinking regarding participant withdrawal and its effect on human subjects research.  

 

The U.S. Office for Human Research Protections recently issued similar guidance regarding participant withdrawal, available here, and is currently soliciting public comment regarding this guidance. 

Vaccine Act Pre-empts State Tort Claims

A Philadelphia Common Pleas judge has ruled that the Vaccine Act, a federal law that governs the liability of pharmaceutical companies for drug vaccines, pre-empts state law tort claims that a vaccine design was defective or that there was a failure to warn the patient of risks associated with the vaccine.

In Wright v. Aventis Pasteur, Jared Wright, an eleven year-old boy with autism, was administered vaccines during his infancy that contained "thimerosal," a mercury-based preservative that Wright's parents contend was the cause of Wright's autism. 

Wright argued that Aventis Pasteur Inc., Merck & Co. Inc., and Wyeth were negligent because they failed to warn the medical community about the potential hazards of mercury in the vaccines, and also argued that the defendants failed to use ordinary cases in designing the vaccines because of the risks toxic mercury poses to infants and children.

Judge Arnold L. New, however, ruled that the Vaccine Act pre-empts Wright's state law tort claims. Specifically, Judge New discussed Congress' intent to avoid instability in the vaccine market that would result from state-law tort liability for vaccine injuries. Judge New also cited Congress's actions in creating the National Vaccine Injury Compensation Program as evidence that Congress intended the Vaccine Act to pre-empt state law tort claims.

FDA Proposes National Database of Orthopedic Implant Registries

The FDA, as part of its Sentinel Initiative to better monitor FDA approved medical products, has announced its intention to create a national database of orthopedic implant registries. This database would track and monitor the progress of various orthopedic implants in an attempt to detect early troubles with the implants. The FDA proposes to create its database through the use of, and by querying, government databases, private and public medical claims databases, and electronic health record systems.

The following article provides a good summary of the FDA's proposed registry:

www.govhealthit.com/online/news/350502-1.html

FDA To List Drugs Under Review

The FDA recently announced that it will begin posting a list of approved drugs that it is investigating due to safety concerns. The list will be available on the FDA's website, and the FDA will update it on a quarterly basis. 

The FDA receives, through its Adverse Event Reporting System, thousands of complaints each year about FDA approved drugs. The list that the FDA will post, however, will feature only those drugs that the FDA has chosen to investigate from the numerous complaints submitted.

While the FDA acknowledges that the list may create a type of false panic among consumers, the list may also serve to protect and inform conscientious consumers who are experiencing health complications from drugs that are on the FDA's quarterly list.

Supreme Court to Hear Wyeth v. Levine

This fall the United States Supreme Court will hear Wyeth v. Levine - a case that may close the loop on whether pharmaceutical manufacturers are immune from state law tort claims. The case is highly anticipated in the life sciences industry as it comes on the heels of two recent U.S. Supreme Court decisions regarding state law tort immunity for manufacturers in the industry.

In February, the Supreme Court heard Riegel v. Medtronic, Inc.  and determined that federal law preempts state law tort claims against medical device manufacturers. Just a few weeks after its decision in Medtronic, the U.S. Supreme Court heard Warner-Lambert, Co. v. Kent and, in a 4-4 deadlock, did not extend preemption immunity to pharmaceutical companies.

Based upon existing law in the medical device arena, the Court’s decision in Medtronic was not terribly unpredictable. The question of state law tort immunity for pharmaceutical companies, however, is a much more difficult issue as existing law in this arena is more ambiguous.
The life sciences industry will surely watch the Supreme Court this fall in anticipation of the Wyeth decision.