Washington Healthcare Update

November 16, 2015

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This Week:Repealing Obamacare becomes problematic in the Senate… More focus on drug prices and reimbursement… FDA asks, should we regulate “natural” and if so, how?

1. Congress

House of Representatives


2. Administration

3. State Activities

4. Regulations Open for Comment

5. Reports

1. Congress


Energy and Commerce Health Subcommittee Chair Not Seeking Reelection

House Energy and Commerce Health Subcommittee Chair Rep. Joe Pitts (R-PA) announced Nov. 6 that he will not be seeking reelection in 2016. Pitts has beenthe Chair of the Health subcommittee since 2011. He played a major role in the passage of major health care bills, including the “Doc Fix,” or SGR reform,“Track and Trace,” or Drug Supply Chain security and the 21st Century Cures bill.

Two Bills Introduced to Prevent Tax Inversions in Response to Pfizer-Allergan Talks

On Nov. 9, Rep. Mark Pocan (D-WI) introduced two bills that would prevent corporations from using tax inversions to reduce their tax bills:

1) The “Corporate Fair Share Tax Act” would restrict corporate earnings stripping or, the moving of profits abroad by loading up a U.S. subsidiary withtax-deductible debt, by limiting the available deduction. The legislation limits the deductions a corporation may claim to a level at which the U.S.entity’s share of interest on debt is proportionate to the U.S. entity’s share of earnings. The Treasury Department estimates this would raise revenue by$48.6 billion over the next 10 years.

2) The “Putting America First Corporate Tax Act” changes Section 952 of the tax code to eliminate deferral of taxation on foreign profits — theCongressional Budget Office estimates that ending this loophole would raise revenue by $114 billion over the next 10 years.

There has been renewed congressional scrutiny on the practice of moving a company’s tax headquarters abroad through a merger, brought about by PfizerInc.’s pursuit of a merger with Allergan PLC.

House Judiciary Subcommittee to Hold Third Hearing on Competition in Health Care with Focus on PBMs

On Nov. 17, the House Judiciary Subcommittee on Regulatory Reform, Commercial and Antitrust Law will hold its third hearing in aseries on the state of competition in healthcare. The hearing is entitled “The State of Competition in the Pharmacy Benefit Manager (PBMs) and Pharmacy Marketplaces” and will examine the state ofcompetition and any related competitive issues.


Ms. Amy Bricker, R.Ph.
Vice President of Retail Contracting & Strategy
Express Scripts
Mr. David A. Balto, Esq.
Law Offices of David Balto

Ms. Natalie A. Pons, Esq.
Senior Vice President and Assistant General Counsel
CVS Health

Mr. Bradley J. Arthur, R.Ph.
Black Rock Pharmacy

To see a press release about the hearing, click here.


Repealing Obamacare Hits Snags in Senate

The House-passed reconciliation bill containing repeal of many provisions of the Affordable Care Act (ACA) has run into trouble in the Senate. On Nov. 10,the Senate Parliamentarian ruled that the law’s individual and employer mandates that were included in the House bill do not meet reconciliation standards.The Parliamentarian said those provisions were merely incidental and did not meet the budgetary standards needed for reconciliation protection.Reconciliation legislation needs only a majority to pass in the Senate, not the usual 60 votes. Overruling that decision would require 60 votes and wouldbe blocked by Democrats. In addition, some Republican Senators do not think the House bill goes far enough in repealing the Affordable Care Act.

The remainder of the House bill would defund Planned Parenthood for one year and repeal the “Cadillac” tax — a tax on insurers, the medical device tax andthe Independent Payment Advisory Board, and cut the Prevention and Public Health Fund. It now looks like the Senate will not take up this legislation — orsome version of it — until after Thanksgiving.

Regardless of what passes, the President is not likely to sign the bill into law. Some are looking to the upcoming tax extender package as a possiblevehicle for repealing some provisions of Obamacare. Extenders are expected to be acted upon at the end of the year.

Senator Writes Letters Asking Stores to Pull Certain Dietary Supplements

On Nov. 9, Sen. Claire McCaskill (D-MO) wrote letters to 10 retailersasking them to voluntarily pull from sale dietary supplements containing picamilon — a substance that does not meet the definition of a dietary ingredient.The letters come after the Oregon Attorney General filed a complaint against General Nutrition Corporation (GNC) for selling products containing picamilon.Sen. McCaskill has been pressing the U.S. Food and Drug Administration (FDA) to take action on the substance, which is classified as a drug in othercountries but is not approved by the FDA.

Senator Hatch Concerned with CMS Spending on Advertising

On Nov. 10, Senate Finance Committee Chairman Orrin Hatch (R-UT) wrote aletter to the Centers for Medicare and Medicaid Services (CMS)expressing his concern about the agency’s advertising practices related to open enrollment, citing the potential for “wasteful government spending.” TheU.S. Department of Health and Human Services says it will spend $35 million for advertising in the states using Healthcare.gov for the 2016 open enrollmentperiod. Hatch asked CMS to provide him with the total amount of spending on advertising and public relations from fiscal year 2011 to the present. Herequested a response by no later than Nov. 25.

Senate Finance Committee Announces Hearing on Physician Owned Distributorships

On Nov. 17, the Senate Finance Committee will hold a hearing entitled “Physician Owned Distributors: AreThey Harmful to Patients and Payers?” The hearing will focus on whether physician owned distributorships (PODs) — entities in which physicians earn revenuefrom the sale of medical devices they prescribe — should be allowed.


Dr. Scott Lederhaus
President of Association for Medical Ethics
Monarch Beach, CA

Dr. John Steinmann
Board Advisor for American Association of Surgical Distributors
Redlands, CA

Ms. Suzie Draper
Vice President of Business Ethics and Compliance for Intermountain Healthcare
Salt Lake City, UT

Mr. Kevin Reynolds
Son of a Patient of a Surgeon Affiliated with a Physician Owned Distributor
Ventura, CA

To see a related press release, clickhere.

Senators Write Letter Applauding CDC Opioid Guidelines

On Nov. 10, eight senators wrote a letter to the Centers forDisease Control and Prevention (CDC) to praise the agency for its newly released Draft Guidelines for Opioid Prescribing. The guidelines would recommendnondrug therapy as the preferred treatment for chronic, noncancer pain, prescribe the lowest dose and least number of pills considered effective for thepatient, and regularly review the risks to the patient from the prescription drugs they are taking. The senators note that the U.S. makes up only 4.6percent of the world’s population, but consumes around 80 percent of its opioids.

To see a related press release, click here.

2. Administration

FDA Requests Information Concerning Direct-to-Consumer Tests

On Nov. 2, the U.S. Food and Drug Administration (FDA) sent three manufacturers of direct-to-consumer tests requests for information. FDA is suggestingthat the products may meet the definition of medical devices and lack FDA clearance. The three manufacturers are DNA-Cardiocheck Inc., InterleukinGenetics, Inc., and DNA4Life. This comes as policymakers are debating whether FDA or CMS should oversee laboratory-developed tests.

USP Tells FDA to Scrap Proposed Biosimilar Naming Plan and Suggests Alternative

The U.S. Pharmacopeial Convention (USP) told the U.S. Food and Drug Administration (FDA) to get rid of its proposed biosimilar naming plan and suggested analternative: add a suffix to the USP labeling requirements that would be used to identify and track products back to manufacturers. USP said that FDA’splan to convey the regulatory status of a product could weaken established scientific principles and the understanding of drug and biologic substances, andcould harm patients. USP sets standards for the identity, strength, quality and purity of medicines, food ingredients and dietary supplements manufactured,distributed and consumed worldwide. USP’s drug standards are enforceable in the United States by the Food and Drug Administration, and these standards areused in more than 140 countries.

FDA published draft guidance proposing to attach non-meaningful, four-letter suffixes to biosimilars’ nonproprietary names in order to preventunintentional substitution of products that haven’t been deemed interchangeable. USP contends that the FDA proposal would cause confusion and put patientsat risk due to medication errors and the disruption of pharmacy systems. It could also create obstacles to global trade by creating requirements that othercountries view to be an unfair restraint of trade.

The Biosimilars Forum — made up of brand-name and generic drug manufacturers — noted that if FDA attaches suffixes to the nonproprietary names, thesuffixes should be meaningful (based on a given company’s name) instead of non-meaningful. The group thinks that the final rule should create a levelplaying field for biosimilars and reference biologics, and that sponsors should have the flexibility to transition into the new naming system.

Companies Amgen and Sandoz Biosimilars Case Likely to Go to Supreme Court

Industry attorneys have predicted either Amgen or Sandoz will appeal to the Supreme Court the Federal Circuit’s decision concerning the biosimilarpathway’s patent and marketing requirements. The two primary issues in this case are 1) whether the “patent dance” is mandatory and 2) when a biosimilarapplicant can provide notification of commercial marketing. The appeals court denied requests for a full hearing when a three-judge panel ruled that thelaw’s patent exchange provisions are optional and the 180-day notice for commercial marketing can be issued only after the drug gets approval. Attorneysnote that it is unlikely that this decision will be the last in the case, as the Federal Circuit was severely divided on the matter.

There are three separate court cases addressing similar issues that could be affected if the Supreme Court becomes involved — two cases were brought byAmgen against Apotex and Hospira and another by Janssen against Celltrion and Hospira.

FDA Approves First Product Marketing Orders Under the Tobacco Control Act of 2009

On Nov. 10, the U.S. Food and Drug Administration (FDA) announcedthat for the first time it has authorized the marketing of new tobacco products through the premarket tobacco application (PMTA) pathway. The authorizationis for Swedish Match North America to sell eight snus smokeless products — this is the first time FDA has granted approvals under the Tobacco Control Actof 2009, which gave it authority to regulate the industry. The FDA review found that the snus products will likely provide less toxic options if smokelesstobacco users use them exclusively.

However, the tobacco company is not allowed to imply that their products are FDA approved, and must submit a separate application to market their productsas less harmful than others.

Insurer Announces Outcome-based Pricing for Cholesterol Drugs Ahead of HHS Drug Pricing Forum

On Nov. 9, Harvard Pilgrim announced an outcomes-based pricing contract with Amgen for cholesterol drugs in return for preferential treatment of Amgen’sdrug. Various stakeholders as well as the U.S. Department of Health and Human Services (HHS) have mentioned outcomes-based payment models as a topic todiscuss at the upcoming drug forum on Nov. 20.

Amgen agreed to discount cholesterol drugs for Harvard Pilgrim when the drugs do not reduce LDL levels by as much as was observed during clinical trials.Amgen will further discount the drug if more patients use it than expected.

NAIC Passes New Model Law on Plan Network Access and Adequacy

On Nov. 4 the National Association of Insurance Commissioners’ (NAIC) Health Insurance Committee passed a new model law entitled “Health Benefit PlanNetwork Access and Adequacy Model Act.” For the first time since 1966, the model law will update existing requirements and includes new guidelines ontelehealth, mental health, in-network protocols, provider directory requirements and the “good faith” nondiscrimination provision of the Affordable CareAct (ACA). It makes the states responsible for having regulatory control over the information insurers include in plans as well. The full membership of theNAIC will vote on Nov. 22 on adopting the model law and on whether to keep all the proposed revisions in each respective state.

Consumer representatives to the NAIC sent a letter tothe Health Insurance Committee applauding the model law while requesting more changes before it becomes final. While the changes weren’t made, NAIC notedthat states still have the ability to create additional rules for insurers — it is up to the states to decide if they want to make the changes.

The U.S. Department of Health and Human Services (HHS) has expressed interest in the model law and will likely put some of its guidance into federalregulations if it passes. HHS is currently working on its own nondiscrimination rulemaking.

CMS Restarts Medicare Recovery Auditors Contracting Process

On Nov. 6, the Centers for Medicare and Medicaid Services (CMS) restarted the contracting process forMedicare Recovery Auditors (RACs). CMS has maintained that when providers appeal payment denials, RACs will not be paid until after those appeals are denied at the second level, eventhough a similar provision thwarted CMS’s last attempt to set up RAC contracts.

This summer, CMS said it planned to update the Recovery Auditors’ Statement of Work and release new Requests for Proposals. On Nov. 6 it announced the newRequests for Proposals, including updated Statements of Work on the Federal Business Opportunities website. On the same day, CMS also released a timelineof RAC “program enhancements.” One enhancement to be incorporated into the new contracts is that RACs “will not receive their contingency fee until afterthe second level of appeal is exhausted,” the document says.

The Statement of Work also says that RACs are expected to support CMS in cases that make it to the Administrative Law Judge (ALJ) level of appeals. RACspreviously complained they wanted to be involved in more appeals because their presence at a hearing increases the probability that appeals are decided inCMS’s favor. Under the new work statement, RACs would also need to wait 30 days after notifying providers of the results of a review before forwarding theclaim to a Medicare Administrative Contractor for a pay adjustment so that providers can request a discussion period. CMS also states that it has theauthority to settle appeals without RAC approval or input.

Because of a backlog in claims getting to the ALJ level, CMS recently settled about 300,000 claims and paid more than 1,900 hospitals about $1.3 billionfor inpatient claims denied on the basis of medical necessity that were under appeal. CMS paid 68 percent of the claims under appeal as part of thesettlement.

For more information, clickhere.

CMS Announces Medicare Premiums and Deductibles for 2016

On Nov. 10, the Centers for Medicare and Medicaid Services (CMS) announced the 2016 premiums anddeductibles for Medicare Part A and Part B programs. About 30 percent of Medicare Part B beneficiaries will avoid a huge rate spike due to the BipartisanBudget Act signed into law recently. Now those beneficiaries will pay a monthly premium of $121.80 instead of over $150 — and most beneficiaries willcontinue to pay the same monthly premium as last year, which is $104.90.

CMS Grants Special Innovation Projects

On Nov. 12, the Centers for Medicare and Medicaid Services (CMS) announced that it awarded 16 two-year Special Innovation Projects (SIPs) to 10 regionalQuality Innovation Network-Quality Improvement Organizations (QIN-QIOs). The projects will address sepsis in long-term care, colorectal cancer screening(CRC) and readmission reduction in rural hospitals, among other things.

MedPAC Discusses Proposed Part D Policy Option Package

At a Medicare Payment Advisory Commission (MedPAC) meeting earlier this month, commissioners beganconsideration of a package of potential Part D reforms that would give plans higher incentives to control drug spending, give increased flexibility tomanage costs and give out-of-pocket protections for enrollees. The commission is also considering changes to Medicare’s reinsurance policies. MedPAC ChairJay Crosson laid out potential policy options at the meeting, and noted that some could hurt beneficiaries while others could hurt plans. The proposedpolicy option package is as follows:

  • Reduce Medicare’s reinsurance from 80 percent to 20 percent
  • Limit beneficiaries’ out-of-pocket costs beyond the cap: one proposal would be for the non-Low Income Subsidy (LIS) beneficiaries and would set a fixed-dollar copayment. For LIS beneficiaries, the proposal would provide a nominal copayment only for brand-name drugs for individuals over the out-of-pocket limit
  • Give plans increased flexibility by removing two drug classes — immunosuppressants and antidepressants — from the six protected classes
  • Ease the procedural processes around getting approval for midyear formulary changes for high-priced drugs
  • Introduce an additional tier, for example a non-preferred generic tier, for Low Income Subsidy (LIS) beneficiaries’ drugs — and also allow the plans to use preferred pharmacy networks with different copayments for LIS beneficiaries

MedPAC will continue discussions on these ideas in March and will vote on final recommendations in April.

3. State Activities

New Jersey: New Jersey Adopts a Biosimilar Substitution Measure

New Jersey Gov. Chris Christie (R) signed A. 2477 into law on Nov. 9 — an interchangeable biosimilar substitution measure that requires pharmacists to tellprescribers after they make a switch rather than send a notification before the change. This measure mirrors an agreement between the BiotechnologyIndustry Organization (BIO) and the Generic Pharmaceutical Association (GPhA) to compromise language on biosimilar substitution that states could use as atemplate for laws.

Under the New Jersey law, pharmacists must tell the prescriber the name of the product and manufacturer of the interchangeable biosimilar within fivebusiness days of substitution — however, the pharmacist cannot make the substitution if the physician has expressly written that there may not be one. TheNew Jersey State Board of Pharmacy must also have a link on its website with a current list of all biological products the U.S. Food and DrugAdministration (FDA) has approved as interchangeable. Until the FDA determines whether a specific biosimilar is interchangeable with its referencebiologic, the substitution policy is up to the individual states.

Ten other states — California, Washington, Utah, Texas, Tennessee, North Carolina, Louisiana, Illinois, Georgia and Colorado — have passed biosimilarsubstitution laws that contain the compromise language. Eight states had already adopted substitution laws before the compromise occurred — Massachusetts,Delaware, Indiana and Idaho (2014); Virginia, Florida, North Dakota and Oregon (2013).

4. Regulations Open for Comment

Centers for Medicare and Medicaid Services (CMS) Issues Proposed Rule to Begin Data Collection for New Fee Schedule for Medicare Clinical DiagnosticLaboratory Tests

CMS released a proposed rule Sept. 25 that initiates the agency’s next step inimplementing the Protecting Access to Medicare Act of 2014 (PAMA), a bill that requires clinical laboratories to report on private insurance paymentamounts and volumes for lab tests. Under the proposed rule, certain laboratories would be required to report private payor rate and volume data if theyreceive at least $50,000 in Medicare revenues from laboratory services and more than 50 percent of their Medicare revenues from laboratory and physicianservices. Laboratories would collect private payor data from July 1, 2015, through Dec. 31, 2015, and report it to CMS by March 31, 2016. CMS will post thenew Medicare rates by Nov. 1, 2016; these rates will be effective on Jan. 1, 2017. Tests that meet the criteria for being considered new advanceddiagnostic laboratory tests (ADLTs) will be paid at actual list charge for a minimum of three quarters. ADLTs are tests offered under Medicare Part B andare furnished by only one laboratory and that either include a unique algorithm and are at a minimum an analysis of RNA or DNA, or are cleared or approvedby the U.S. Food and Drug Administration (FDA). Under PAMA, the Medicare payment amount for any test cannot be reduced by more than 10 percent compared tothe prior year’s amount during the first three years of implementation (2017-2019) and cannot be reduced by more than 15 percent in the following threeyears (2020-2022).

Medicare’s current fee schedule for lab tests was first adopted in 1984 and has remained relatively unchanged except to establish payments for new tests orimplement across-the-board statutory payment updates. Medicare pays approximately $8 billion a year for clinical diagnostic laboratory tests. The newsystem will be updated every three years for clinical diagnostic laboratory tests (CDLTs) and every year for ADLTs to reflect market rates paid by privatepayors. One hot-button issue in the proposed rule is the definition of “applicable laboratory.” PAMA defined an applicable laboratory as one that receivesa majority of its Medicare revenues under the MCLFS or the Medicare Physician Fee Schedule (MPFS). In afact sheet summarizing the proposed rule, CMS said it does not expect any hospital laboratory to meet the