Health Care Current: June 24, 2014

In compliance, the devil is often in the details

This weekly series explores breaking news and developments in the U.S. health care industry, examines key issues facing life sciences and health care companies and provides updates and insights on policy, regulatory and legislative changes.

In health care compliance, the devil is often in the details

In 2010 Gamestation made an update to its terms and conditions (T&C) clause that online shoppers had to agree to before making a purchase. In doing so, a reported 7,500 individuals granted the UK-based video game retailer claim to their “immortal souls.”1

Researchers have found that as few as 12 percent of consumers actually read through lengthy T&C clauses. Can you blame them though for skipping through to the end? Scrolling through one of the lengthier T&C clauses can be akin to reading Macbeth—which contains at least 18,000 words.2

While Gamestation’s prank turned out just to be a clever April Fool’s joke (and the “victims” were sent notices nullifying the clause), it made the important point that the devil can literally be in the details—even for health care organizations.

Now, more than ever, health care providers should pay extra attention to the details of their contracting arrangements. There is a growing competitive need for hospital systems, physicians and other provider organizations to engage in complex financial relationships with other health care entities. But that business need can also increase the risk for those financial relationships, if not structured correctly, to potentially result in violations under a number of fraud and abuse laws. These include the Physician Self-Referral Law (Stark Law), the Anti-Kickback Statute (AKS) and the False Claims Act (FCA).

Staying compliant requires confirming that each and every contract – whether renewal of a legacy one or a new one – adheres to the constellation of rules specified by these laws that either prohibit certain types of actions or make “safe harbor” exceptions for others (see table below). The legal fees, financial penalties, operational disruptions and negative publicity associated with investigations into potential violations can be very costly. Understanding the details of contracts is crucial.

Violations can snowball
Violations in one area can prompt investigation into potential violations in another. What may start as non-compliance with the Stark Law can snowball into perceptions of non-compliance with the AKS and lead to investigation and prosecution under the FCA. In these cases both the physician and the hospital have the potential to be prosecuted under the FCA.

Compliance is a two-way street
Reviewing contracts can be a time-consuming undertaking, but confirming that organizations are in compliance is equally important for both sides in the contractual relationship. The Office of Inspector General, the government agency in charge of enforcement, isn’t limiting action to hospital entities. Individuals involved in non-compliant actions are also being held liable in some cases. Specifying responsibilities, expectations and terms in a detailed manner can be critical for determining compliance and protecting both the organizations and individuals involved from the risk of potential violations.

The past isn’t really the past
Existing contracts can present a bigger source of fraud and abuse risk than new contracts. Time lapses in renewing expired contracts, gaps in contract terms, incorrect payment terms and payment terms that are no longer based on fair market value are just a few examples of potential red flags for investigators.

An essential part of confirming that contracts are compliant is to be very clear about the need and purpose behind engaging a specific physician or physician group. Just having a “clean” contract may not be sufficient for defending compliance. Hospitals and other organizations that contract with physicians should confirm they can document the business need for such a relationship—and that relationship cannot be based on the volume or amount of patient referrals. If a relationship changes in any way, the contract should be re-examined and modified accordingly.

Reading the fine print
Enforcement and whistle-blower activity appear to be on the rise. To help avoid the risk of a fraud or kickback violation, health care providers should:

  • Practice ongoing vigilance: Make sure there is an effective compliance system in place.
  • Update organizational controls: Assess if compliance controls are outdated or unmonitored, and determine what needs to be done to update those controls.
  • Review contracts – both new and renewed – in detail: As the Gamestation “immortal souls” found out, the devil can be in the details.

Just as consumers who breeze through T&C clauses sometimes find themselves in sticky situations, health care organizations need to be aware of important details in order to avoid their own sticky situations.

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Rob Cepielik
Deloitte Financial Advisory Services LLP

Mike Little
Senior Manager
Deloitte Financial Advisory Services LLP

1 Fox News, “7,500 Online Shoppers Unknowingly Sold Their Souls,” April 15, 2010,;
2 Rich Parris, Which?, “Online T&Cs longer than Shakespeare plays – who reads them?,” March 23, 2012,

Table 1: U.S. laws governing fraud and abuse in health care

Sources: Office of the Inspector General, Comparison of the Anti-Kickback Statute and Stark Law,;
Centers for Medicare & Medicaid Services (CMS), False Claims Act,

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My Take

By Jeremy Perisho
Partner, Deloitte Financial Advisory Services LLP



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Implementation & Adoption

Two organizations offer lessons learned from the first open enrollment period

Last week Enroll America released a report evaluating lessons learned from the Affordable Care Act’s (ACA) first health insurance marketplace open enrollment period from October 1, 2013 to March 31, 2014. Enroll America provided several lessons for future enrollment periods:

  • Hard to reach populations: Populations that remain the hardest groups to enroll include African Americans, Latinos and young adults.
  • Application assistance: The ACA provided funding to train and set up navigators (organizations to assist with enrollment and awareness building), certified application counselors and other in-person assisters. Potential enrollees who used these individuals and groups were more successful in signing up for coverage.
  • Financial assistance as a motivator: According to their survey data, telling potential customers about the availability of financial assistance was the most effective way to get uninsured individuals to enroll in coverage.
  • Individualized information: Information and resources such as calculators and interactive tools were more likely to motivate consumers than were personal stories about individuals who had enrolled in coverage.

Enroll America noted that overcoming the knowledge gap surrounding access, eligibility and affordability of the marketplace plans was a significant barrier throughout the enrollment period. In formulating its approach for the initial open enrollment period, Enroll America focused on understanding who the uninsured were. Based on their data, two-thirds of the uninsured lived in 13 states and 50 percent of the uninsured lived in less than 4 percent of all counties in the U.S.

Community Catalyst also released a report this month recapping the first open enrollment period. With the support and assistance from Community Catalyst and other national partners and funders, the organization focused on five strategies across states: closing the information gap, breaking down barriers with one-on-one assistance, meeting consumers where they are, getting everyone to the table and lifting up success stories and improving the consumer experience.

Related: Findings from Deloitte's survey of young adults and health insurance paint a similar picture of the first open enrollment period for young adults. Seven out of 10 adults age 19-34 said they knew about the marketplaces, mandate, penalty and the March deadline for open enrollment. However, awareness of key parts of the law such as Medicaid expansion (in applicable states), federal premium assistance and the fact that individuals younger than age 26 can remain on their parent’s insurance plans was low. For more on the results, click here.

(Source: Enroll America, “State of Enrollment, Lessons Learned from Connecting America to Coverage, 2013-2014,” June, 2014 ; Community Catalyst, “Connecting Consumers to Coverage: Mobilizing for Enrollment,” June, 2014)

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Report from The Commonwealth Fund finds U.S. health care lagging behind other countries

Last week The Commonwealth Fund released a report that evaluates system-wide health care measures for eleven countries; the U.S. health care system ranks last overall and is the most expensive system out of the other countries (average health expenditures per capita: $8,508). This report has similar findings to past ones—the group found that the U.S. ranked last in health care access, efficiency and equity in 2004, 2006, 2007, and 2010. However, all countries had areas for improvement. Additional highlights of the findings:

The authors argue that the main reason for the U.S. rankings is that the other industrialized countries offer universal health care. However, the authors note that the data used are before full implementation of the ACA. As the U.S. adopts health information technology and expands health insurance coverage, the U.S. could begin to see a decrease in the gap between it and other industrialized nations. The newest edition of the report draws from The Commonwealth Fund’s patient and provider survey results and health outcome country information from the World Health Organization and the Organization for Economic Cooperation and Development.

(Source: The Commonwealth Fund, “Mirror, Mirror on the Wall, 2014 Update: How the U.S. Health Care System Compares Internationally,” June 16, 2014)

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Vitality Institute recommends greater investment in health promotion and prevention

Over the last year, The Vitality Institute convened a group of leaders from health policy, industry, academia and government to discuss health promotion and the prevention of chronic disease in the workforce. They held a series of private meetings and public forums to develop five recommendations intended to reduce chronic disease in the workforce. Their recommendations include:

  • Invest in prevention science: The group calls for expanded application of scientific methods to be applied toward the prevention of poor health conditions. Specifically, the areas of behavior economics and personalized technology should be included.
  • Strengthen and expand leadership to deliver a unified message for health prevention: Leaders from across the public and private sectors should work collaboratively to develop consistent messaging that supports a “culture of health.”
  • Make markets work for health promotion and prevention: Markets have an opportunity to stimulate and encourage consumers to purchase new products, services and technologies that could make their lives healthier. These products should also be commercialized to support early adoption.
  • Integrate health metrics into corporate reporting: Companies should be encouraged to integrate standardized workforce health metrics into their annual financial reports.
  • Promote strong cross-sector collaborations that generate a systemic increase in health promotion and prevention across society: Leaders, researchers and policymakers from outside of health care should all work to expand prevention.

The report acknowledges that the 20th century saw many advances in the area of infectious disease, increasing the life expectancy more than any time period before it. But the new major disease threat is from those caused by lifestyle and behavior—the authors argue that deaths from non-communicable diseases will continue to rise if these issues are not addressed.

(Source: The Vitality Institute, “Investing in Prevention: A National Imperative,” June 2014)

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Survey: Physicians, PAs and pharmacists concerned with FDA’s generic drug labeling rule

Last week the Generic Pharmaceutical Association (GPhA) and the National Coalition on Healthcare released survey results that found about 81 percent of doctors, physician assistants (PAs) and pharmacists believe the U.S. Food and Drug Administration (FDA) should approve any changes made to safety information on generic drug labels. The group conducted a survey of 150 physicians, 150 PAs and 150 pharmacists. Additional findings include:

In November 2013 the FDA issued a proposed rule, Supplemental Applications Proposing Labeling Changes for Approved Drugs and Biological Products, which would allow generic drug manufacturers to change their safety labels without prior FDA approval. The National Coalition on Health Care estimates that generic drugs have saved the health care system more than $1.2 trillion over the last decade.

Related: This past March the Biotechnology Industry Organization (BIO) submitted alternatives to the FDA’s proposed rule, suggesting that if the FDA moves forward with the policy, it should consider altering its changes being effected (CBE) process. The CBE process refers to the supplemental application process that applies to labeling changes for approved drugs, medical devices and biological products. For a summary of their suggestions, see the March 25, 2014, Health Care Current.

(Source: Generic Pharmaceutical Association, “Healthcare Professionals’ Perspectives: FDA Proposed Rule on Generic Drug Labeling,” June 18, 2014)

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On the Hill & In the Courts

PhRMA requests CMS extension of Open Payment website due to technical concerns

In a letter to CMS on June 13, 2014, the Pharmaceutical Research and Manufacturers of America (PhRMA) requested that the agency delay the June 30, 2014 registration and data submission deadline for the Physician Payments Sunshine Act’s Open Payment program. The law requires drug manufacturers and group purchasing organizations (GPO) to disclose financial relationships established with physicians and teaching hospitals by this deadline. According to PhRMA, the Open Payments website, the official website used by the companies to report payments or transfers made to physicians and hospitals, suffers from technical issues making it difficult for some to register and complete the submission process. For this reason, the group has requested that CMS extend the timeline for data submission by 30 days.

The letter acknowledges CMS has been working to fix the website but notes that many foreign manufacturers and foreign affiliates of American manufacturers have had additional difficulty due to the helpdesk hours, which “do not accommodate European or Asian time zones.” In addition to the technical barriers faced by the companies, PhRMA indicated that their members have encountered two issues with the submission process that could cause reported data to be inaccurate. According to the group, manufacturers cannot report when payments or transfers of value were refunded by a covered recipient, which often occurs in cases of clinical trials with research grants. The submission technology also does not allow manufacturers to use certain characters (e.g., parentheses, mathematical symbols). PhRMA encourages CMS to address both of these issues with the Open Payments website technology.

Background: The Open Payments program is being operated in two phases for 2014. During phase 1, manufacturers and applicable GPOs registered in CMS’s Enterprise Portal and submitted corporate profile information and aggregate information about 2013 payments and transfers. During the second and current phase (June 9–June 30), companies have been registering in the Open Payment system and reporting detailed information about 2013 payments and transfers. CMS will post the data on a public website when the process has been completed.

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Physician organizations ask Congress to extend Medicaid primary care payment policy

Earlier this month a group of 21 health care provider associations and organizations sent a letter to Congressional members of the Senate Finance and House Energy and Commerce committees. The group urged Congress to sustain for two additional years the ACA federal primary care payment policy in Medicaid. The provision requires states to pay physicians at least 100 percent of the Medicare payment rate for primary care services they provide under Medicaid. The provision expires at the end of this year, after which point states will no longer receive 100 percent federal funding to make up the difference between the two rates. The group also requested that obstetricians and gynecologists (OB-GYN) be added as specialists eligible for the enhanced payments under Medicaid. According to the letter, 60 percent of the codes used by OB-GYNs are codes included under the provision.

Background: On average, Medicaid payment rates are about two-thirds of what Medicare pays for the same services. The group suggests low Medicaid rates could limit patients’ access to care. The Medicaid and CHIP Payment and Access Commission (MACPAC) found that the number of physicians willing to accept different insurance varies, and limited access to physician care leads to higher use of emergency departments.

Percent of physicians willing to add additional patients by type of insurance (2014):

Source: MACPAC, “Report to the Congress on Medicaid and CHIP,” March 2014

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FDA releases draft guidance related to industry use of social media

Last week the FDA released draft guidance regarding the use of internet/social media platforms that have character space limitations in advertisements for prescription drugs and medical devices. The draft is intended to provide manufacturers with initial guidance around how the FDA is approaching rules for the use of online platforms to present drug benefit and risk information and to give stakeholders an opportunity to provide feedback. The guidance recommends that drug manufacturers that choose to use social media or online platforms with character space limitations should consider the following provisions of the Federal Food, Drug, and Cosmetic Act (FD&C Act):

  • Promotional labeling should be truthful and non-misleading
  • Promotional labels for prescription drugs or devices must include information about the use of the product and risks associated with it
  • Required information should be prominent on the label and easy to understand
  • Advertising must present a fair balance between risk and benefits and also “a brief statement of intended uses”

Regardless of character space, the FDA recommends that truthful, accurate, non-misleading and balanced product information better serves customers and should be included in advertisements. The FDA also recommends that firms include a mechanism for which customers can obtain complete information on risks associated with the product. If presenting this information is not possible in these platforms, the FDA recommends for companies to reconsider using them.

Background: In November 2009 the FDA held a public hearing in Washington, DC to solicit input related to the use of internet and social media tools for the promotion of FDA-regulated products. Since then industry stakeholders have awaited the release of guidance that speaks to this topic and outlines FDA’s thinking. In 2012 Congress passed the Food and Drug Administration Safety and Innovation Act, which required the Secretary of the U.S. Department of Health and Human Services (HHS) to issue guidance that describes the FDA’s policy on using the internet (including social media) to promote medical products regulated by the agency. The bill required HHS to release guidance no later than two years after the enactment of the law.

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Around the Country

Colorado approves health insurer market assessment

Last week the board of Colorado’s health insurance marketplace, Connect for Health Colorado, approved the state-based marketplace’s $66 million budget for fiscal year 2015. In addition to the budget, the board approved a charge on insurance carriers operating in the state’s marketplace; each carrier will be assessed a fee of $1.25 per member per month. The state legislature agreed to this measure last year when it passed a bill to allow the marketplace to charge a fee of up to $1.80 per member per month. The fee, amounting to approximately $13 million in funding, will be used by the marketplace to assist with operations in coming years. Since 2010 Colorado has received more than $178 million in grant funding from CMS to assist with planning, hiring staff, technology development, certification, testing and deployment of its marketplace. The ACA requires the marketplaces to be self-sustaining beginning by January 1, 2015. Colorado is using this fee to help make its marketplace more operationally and financially sustainable.

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Illinois governor signs bill to restore and transform the Medicaid program

Last Monday Illinois Governor Pat Quinn signed a bill to restore benefits that were removed from Medicaid two years ago. In 2012 Illinois cut Medicaid coverage for adult dental and podiatry care. Under this new bill, both services will be covered again starting October 1, 2014. The bill also made reforms in an effort to transform the program over a four-year period and align state Medicaid program policies to the ACA. Notable changes include the following:

  • Additional benefit changes: In addition to restoring dental and podiatry care for adults, the bill eliminates prior authorizations put into place for certain drugs and cases and adds coverage for kidney transplants in certain patients.
  • Medicaid coverage for children: Previously the state required children to be without health insurance coverage for 12 months before they were eligible to enroll in the Medicaid program; the bill brings the state into compliance with federal law and changes that to three months.
  • Additional funding for safety-net hospitals: The law includes $10 million to support safety-net hospitals during the transition.
  • Hospital rate reform: The bill establishes new rate methodology effective July 1, 2014. The law includes $290 million to help hospitals transition to the new payment rate system, which will sunset on July 1, 2018.

According to the governor’s office, the new law will benefit 3 million Medicaid beneficiaries, more than 200 hospitals and more than 1,200 nursing homes in Illinois. The bill includes plans for the governor to request approximately $400 million from HHS to pay hospitals that are treating the Medicaid population who enrolled through the expansion of the program in 2013. As a result of Illinois’s Medicaid expansion, more than 349,000 low-income residents have obtained health coverage.

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Breaking Boundaries

New personalized medicine vaccine technique attacks cancer cells using patient’s immune system

Argos Therapeutics has developed a personalized medicine technique to generate an immune system response against cancer that is currently undergoing clinical trials through Cedars-Sinai Samuel Oschin Comprehensive Cancer Institute. As part of a class of oncology treatments called immunotherapies, scientists are engaging the patient’s immune system to battle cancer. This is done by removing a piece of tumor during surgery and then extracting the ribonucleic acid (RNA) from the tumor. The RNA is then used to create a vaccine, which effectively trains the white blood cells to attack the cancer. In the preliminary trials, patients with advanced kidney cancer who received the treatment lived almost three times longer than patients who have had this condition in the past. The first experiments involved 21 patients, half of whom lived two and half years after diagnosis. Five of the patients who received the treatment are alive more than 5 years after receiving it. The approach is currently undergoing a randomized study with a larger sample size of 450.

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University of Maryland receives a grant to support a personalized medicine approach to monogenic diabetes

Last week the University of Maryland School of Medicine received a four-year $3.7 million grant from the National Institutes of Health to study personalized medicine as it relates to monogenic diabetes. The research will entail evaluating methods developed for implementation in a variety of health care settings. Monogenic diabetes is caused by mutation in a single gene and accounts for 1 percent of diabetes cases in the U.S. However, researchers have suggested that prevalence could be underreported due to misdiagnosis. One study found that monogenic diabetes is diagnosed correctly in approximately 6 percent of cases in the U.S. Because of this, many patients with monogenic diabetes receive inappropriate treatments (e.g., treatment for type 1 or type 2 diabetes, which are both caused by multiple gene mutations). Physicians often encounter barriers with diagnosing monogenic diabetes because genetic testing is not always covered by insurance companies, and even when it is, the testing can be expensive and subject to limited availability. The grant allows lead investigators to implement genetic testing within a variety of clinical health care environments, creating avenues for initiating early and accurate detection, diagnosis and treatment of the disease. The researchers also hope to observe which aspects of the model could be adaptable for other genetic variations of common diseases.

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