Health Highlights

Section 1332 Waivers: Will We See More State Innovation?

By Joel Ario, Managing Director, Manatt Health

Editor's Note: In a new essay for the National Institute of Health Care Management (NIHCM), summarized below, Manatt Health examines Section 1332 waivers and the opportunities they offer states to customize health reform, starting as early as 2017. Narrow interpretation of the statute's protective guardrails has limited state action to date, but this guidance can be relaxed by the next administration, which could spark bolder state experiments. To download a free PDF of the full essay, click here.


Stakeholders across the country are focused on effectively implementing the Affordable Care Act (ACA) and making incremental—not radical—changes to it. But how can change happen given the deep divisions around what corrections are needed? One answer lies in Section 1332 of the ACA, which invites states to be "laboratories of democracy" in experimenting with ACA reforms.

What Could States Do?

Section 1332 authorizes states to request five-year renewable waivers from the U.S. Departments of Health and Human Services (HHS) and the Treasury to modify the ACA. States may:

  • Modify the rules governing covered benefits, premium tax credits and cost-sharing subsidies.
  • Replace or modify their ACA Marketplaces by providing health plan choice, subsidy eligibility determination and enrollment in other ways.
  • Modify or eliminate the ACA's individual and/or employer mandates.

In designing new approaches, states must satisfy four statutory "guardrails." They must provide coverage that is at least as (1) comprehensive and (2) affordable to (3) at least as many residents as would have been covered without the waiver, all (4) without increasing the federal deficit. Substantive guidance on how reform proposals will be judged against these guardrails, released in late 2015, was decidedly more restrictive than some states had hoped. The limitations have largely discouraged states from proposing sweeping reforms.

What Are States Doing So Far?

Three states published draft waivers this spring, and each was narrowly drawn to address unique issues. The first phase of a Massachusetts proposal to maintain certain ratings practices in its merged small group and individual markets was approved by HHS on other grounds, obviating the need to file for a 1332 waiver this year. Similarly, Vermont's draft waiver to continue relying on direct enrollment through carriers rather than building a Small Business Health Options Program (SHOP) portal was rendered moot by HHS guidance delaying the mandatory change to an online portal to 2019. That makes Hawaii's waiver—asking to maintain its 40-year-old employer mandate rather than implement a SHOP with less-generous coverage—the only one to gain approval in 2016.

Two other states—Alaska and California—have recently passed legislation to pursue 1332 waivers, and each could get last-minute attention from the Obama Administration because of the subject matter. Alaska could get a savings credit under 1332 for a $55 million state reinsurance program that will reduce premiums and federal tax credits. California could get approval for making non-subsidized coverage available to immigrants who cannot obtain coverage through Covered CA today.

Looking Ahead

For 1332 waivers to be a game-changer, the next administration would need to encourage state engagement by providing more leeway for broad innovations, starting with revisions to the 2015 guardrail guidance. Ultimately, state innovations will depend on how the guardrails are interpreted, as well as on political considerations.

Changing benefits and subsidies. The ACA seeks to make coverage affordable through a combination of low premium/high cost-sharing plans and a sliding scale of subsidies that minimize both premium contributions and cost-sharing obligations for low-income consumers. Critics on both ends of the political spectrum question whether the law strikes the right balance. Many states also would like to smooth the continuum between Medicaid and Marketplace coverage, but drive toward that goal in very different ways. Conservative states, such as Indiana, have sought to increase Medicaid cost-sharing to Marketplace levels, while liberal states, such as New York, want to decrease Marketplace cost-sharing to Medicaid levels.

Redoing the exchanges. States have been weighing a wide range of alternative approaches to the ACA's exchange Marketplaces—from privatizing them to expanding their leverage. Waivers to reform the role of public exchanges must be mindful of how such changes affect access across different populations.

Replacing the individual mandate. The individual mandate is the least popular provision in the law, but experts agree that eliminating it would drive healthy people out of the insurance market, reducing coverage and increasing premiums. To avoid violating the coverage and affordability guardrails, states wanting to waive the individual mandate will need another way to keep healthy people in the insurance pool. Options include penalties for late enrollment, multiyear waiting periods if open enrollment is missed or automatic enrollment.

Repealing the employer mandate. The employer mandate could be eliminated without a significant impact on the scope or cost of coverage, but this step would raise the federal deficit by reducing the penalty revenue from large employers. States would need to have other features in their 1332 waivers to offset this lost revenue or cut federal costs elsewhere. One option might be a "pay for play" requirement for employers to pay a flat percentage of their payroll in benefits or taxes.


Section 1332 waivers could be just the ticket for unleashing state-level health reform, and relaxed guardrail guidance could encourage some states to take up bolder reforms. However, states also could opt to continue the status quo or pursue only narrow changes, if only because the ACA's success in expanding coverage is raising the political price of disrupting health coverage.

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Reforming Medicaid's Long-Term Services and Supports System

By Stephanie Anthony, Director, Manatt Health | Carol Raphael, Senior Advisor, Manatt Health

Editor's Note: In July, Manatt Health kicked off its "Manatt on Medicaid" webinar series—an ongoing deep dive into the trends reshaping Medicaid and the entire U.S. healthcare system. Among our opening sessions was a detailed look at the trends reforming Medicaid's long-term services and supports (LTSS) system. The program, summarized below, explored LTSS's role in the care continuum…LTSS utilization and spending trends…state efforts to integrate comprehensive care for people who need LTSS…and recent developments in LTSS delivery system and payment reform. Click here to view the webinar free on demand and here to download a free copy of the webinar presentation.


LTSS: A Vital Part of the Care Continuum

Medicaid-funded Long-Term Services and Supports (LTSS) are provided to individuals in order to meet personal care and daily routine needs, and are a vital part of the care continuum. LTSS include a range of mostly nonmedical services and supports, such as care coordination, medication management, adult day health, physical therapy, meal preparation, home health, and nursing care.

More than 12 million people in the United States use LTSS. Many are "dual eligible"—those eligible for both Medicare and Medicaid due to their age, disability, and income level. However, approximately half of those who use LTSS are younger than 65, including a large number of children. Individuals needing LTSS span a range of ages, functional statuses, types of disabilities, and care needs.

The Imperative for LTSS Reform

Many states are facing persistent challenges in their LTSS systems that inhibit access to high-quality LTSS and threaten Medicaid's long-term sustainability. These challenges include:

  1. People. Dramatic demographic changes and advances in medical technology are increasing the demand for LTSS. It is estimated that the number of Americans who need LTSS will surge to 27 million by 2050, up from 12 million in 2010.
  2. Cost. Few people adequately plan for, or even think about, long-term care until they need it. In fact, more than 5 in 10 Americans who are 40 or older have done little to no planning for their future LTSS needs, and nearly 4 in 10 mistakenly believe that Medicare covers long-term care costs.

    Because people are unprepared for LTSS, Medicaid has become the primary and default payer, accounting for 51% of the $310 billion of national LTSS spending. Spending on LTSS is reaching unsustainable levels. LTSS now accounts for nearly a third of all Medicaid spending, and the rate of spending growth for Medicaid LTSS is estimated to be more than three times the rate of spending growth for Medicaid overall.
  3. Informal workforce. The LTSS workforce is built on the shoulders of 40 million informal, unpaid caregivers who face physical, emotional and financial stress. More than 8 in 10 Americans who need long-term care receive it from informal caregivers, and 4 in 10 report a past or current experience providing long-term care to family or friends. As the population ages, the ratio of potential family caregivers for those 80 years of age and older is estimated to decline rapidly, which may result in a serious shortage of caregivers.
  4. Direct care workforce. The direct care workforce is set to add 1.6 million new jobs by 2020, totaling nearly 5 million people and becoming the largest occupational group in the country. In spite of this growth, the supply of workers is inadequate. Median wages for personal care aides, home health aides, and nursing assistants remain low, individuals often work less than 40 hours a week, workers receive little training, and there is no clear career ladder. As a result, the rate of workers between 2003 and 2013 leaving these occupations outpaced the rate of those entering.

These four issues are compounded by the lack of a standard set of meaningful quality measures and the overall lack of long-term care integration into the healthcare system. Combined, these issues are resulting in an LTSS system that may be providing suboptimal care while also creating serious budget pressures on the Medicaid program.

A Vision for Reform

States are striving toward an LTSS system that is:

  • Person centered, identifying and providing the services and supports that people prefer, in the location of their choosing and including family and friends as integral parts of the care delivery team.
  • Integrated, having an infrastructure that supports medical and nonmedical providers sharing information and working together to deliver coordinated care.
  • Sustainable, using purchasing strategies that reward high-quality, high-value care.
  • Actionable, leveraging technology to collect real-time information on outcomes, quality and safety.
  • Accountable, designating entities at the state agency and delivery system levels to be responsible for managing the care of LTSS populations, monitoring provider and plan performance, and engaging stakeholders through transparent information.

The best model for achieving a reformed system is one in which a single entity or network of entities assumes financial and performance accountability for delivering LTSS and then is actively monitored by the state. The vehicle for change could take on a number of forms, including Medicaid ACOs, integrated care plans, consortiums of community-based organizations, or a combination of those.

Foundational LTSS Reforms

The six pillars of LTSS reform include:

  1. Driving provider-level integration. Partnerships between LTSS providers, the healthcare sector, and broader community networks must be strengthened, and opportunities for cross-provider education must be expanded.
  2. Improving access. Because consumers are ill-prepared for their own long-term care needs, states must gain a deeper understanding of how individuals and their support systems seek out and receive LTSS information. In addition, states should provide information regarding LTSS in a simplified and more easily accessible manner. Options such as counseling programs and uniform assessment tools can help ensure the right placement at the right time.
  3. Identifying and implementing meaningful quality measures. States should select a manageable set of meaningful metrics that encompass both the clinical domain and nonclinical domain. Additionally, quality information should be made readily available to the public.
  4. Supporting informal caregivers. States must better support the invisible army of caregivers. They may consider paying family members as caregivers and establishing or strengthening paid family leave benefits. Connecting caregivers with dedicated care coordinators can help ease the stress individuals face when an unexpected issue arises.
  5. Enhancing direct care workforce capacity. Several states are moving to establish a minimum wage for all direct care workers. States should look to establish a clear career ladder and provide enhanced training to entice workers to remain in the profession.
  6. Expanding access to supported housing. Expanding access to supported housing requires cross-agency and cross-sector initiatives, but is crucial to address many of the social and economic determinants of health. States may consider analyzing the current nursing home capacity and assessing how nursing homes might be updated and/or converted for mixed use.


When examining Medicaid LTSS reform and the trends driving it, there are five key takeaways:

  • The number of Americans needing LTSS will continue to increase, and care will continue to shift to community settings.
  • The current LTSS system may be providing suboptimal care while also creating serious budget pressures for the Medicaid system.
  • States, plans and providers are adjusting to the shift to managed LTSS and must figure out how to deal with high-risk populations.
  • The system of the future may be achieved in a variety of ways but will require increased financial and performance accountability from providers and plans, monitoring by government agencies, and consumer engagement.
  • States are beginning to implement strategies to achieve the system of the future but much work remains.

When it comes to LTSS reform, states are the laboratories for experimentation and are exploring and implementing some very innovative and promising approaches. It is imperative that states address the pressures the system is facing, as the stakes are simply too high for inaction.

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BIO and PhRMA Issue Communication Guidelines for Off-Label Information

By Ian Spatz, Senior Advisor, Manatt Health

In the context of increasing uncertainty over the constitutional limits on U.S. Food and Drug Administration (FDA) regulation of medical product manufacturer communications and interest in increasing the communication around health economic information, the two main trade groups for medicines, the Pharmaceutical Manufacturers Association of America (PhRMA) and the Biotechnology Innovation Organization (BIO), have agreed on a new set of advocacy principles. Released on July 27, the "Principles on Responsible Sharing of Truthful and Non-Misleading Information About Medicines with Healthcare Professionals and Payers" (the Principles) set out a carefully crafted and limited view on the extent that drug and biotechnology companies should be permitted to share and review information with healthcare stakeholders, including health plans and pharmacy benefit managers (PBMs), that is generally not approved by the FDA, and therefore, not permitted under FDA rules.


The Principles come as the courts have dealt defeats to the current FDA regulatory approach that generally puts off-limits to manufacturers the ability to discuss information that has not been vetted and approved by the FDA. This is often referred to as off-label information. It may include studies the company or others have sponsored that show additional benefits or uses of the drug. It may also include information, such as medical society recommendations for drug uses and comparative economic benefits.

Life sciences companies, engaged in research and development on their products, assert that they are well positioned to provide information but may be prohibited from doing so by FDA rules. Others argue, however, that the current rules force companies to have their information reviewed by the FDA if they want it disseminated, which can provide an important check on companies and an incentive to gain FDA approval. Off-label use of medicines is legal and common.

Recent court decisions have gone against the FDA, based on manufacturers' First Amendment free speech rights. While companies do not enjoy the same free speech rights as individuals, the Supreme Court has recognized the concept of commercial speech and given it substantial protection from government regulation.

Basing its decision on a 2011 case in which the U.S. Supreme Court applied commercial speech protection in the area of drug prescribing (Sorrell v. IMS Health Inc., S. Ct. 2653 (2011)), the U.S. Court of Appeals for the Second Circuit ruled in 2012 that, in the specifics of a criminal case, the FDA lacked authority to prohibit the dissemination of truthful, non-misleading information (United States v. Caronia, 703 F.3d 149 (2d Cir. 2012)). This spring, the FDA settled a pending case against Amarin Pharma following a preliminary ruling by a U.S. District Court that the FDA could not prosecute Amarin based on its truthful and non-misleading promotion of its drug (Amarin Pharma, Inc. v. FDA, No. 15-3588, 55 (S.D.N.Y. Aug. 7, 2015)).

Because of these legal opinions, the FDA has appeared reluctant to challenge companies' promotional practices and test the limits of how far other courts may go in overturning current rules. However, the agency has not announced any significant new policies or standards that might reflect possible new constitutional limits on its powers. In the face of this uncertainty, drug, biotechnology and medical device companies have been cautious in stepping beyond the limits of FDA's current guidance.

This legal uncertainty also comes at a time when drug companies are seeking to respond to public and private payer requests for aligning incentives across the healthcare system silos—hospitals, physicians, and life sciences companies—through the development and adoption of so-called "value-based payments." Companies have raised the FDA rules on off-label promotion as a significant barrier to entering into agreements with payers to price their products based on outcomes. They assert that developing and implementing such agreements would often require them to discuss drug uses, outcomes, and measures that may not have FDA approval.

The Principles

In this context, the Principles can be seen as an attempt by the industry to suggest to the FDA that it wants to agree on a set of new rules that, while going beyond current restrictions, set out some clear guardrails that allow freer discussion of information but do not usher in an "anything goes" era of bare-knuckle drug promotion. In the Principles, the two trade associations state that they "believe that the availability of a wider range of truthful and non-misleading information can help healthcare professionals and payers make better informed medical decisions for their patients, which in turn will benefit patients."

The Principles as a whole seek to detail what might define the boundaries of truthful and non-misleading information as cited by the courts. In general, the Principles adopt three key concepts: 1) that the information be scientifically sound, 2) that it is presented in context, and 3) that it is accurately represented. Nine detailed Principles amplify these key concepts:

  1. Companies are required to present information that is based on scientifically and statistically sound methodologies.
  2. The information should include, and accurately and fairly describe, the current product labeling.
  3. When the information is not part of that label, companies are mandated to disclose the study design and implementation, any limitations, and any contrary evidence. This Principle would require the disclosure of enough detail to ensure the communication is not misleading, as well as links to additional information.
  4. The fourth Principle describes some of the kinds of information that should be permitted beyond controlled clinical trials, including real-world data, pharmacoeconomic information and accepted treatment guidelines.
  5. All communication should be tailored to the sophistication and knowledge of the particular audience.
  6. Companies should be able to communicate about non-labeled, medically accepted alternative uses in a truthful and non-misleading manner and participate responsively in discussions about their medicines.
  7. Companies should also be able to communicate with payers prior to product and label approval.
  8. Companies need to analyze real-world, population-based data and communicate about those data.
  9. Companies should be able to distribute and discuss peer-reviewed literature—including studies that companies sponsor more freely and beyond current FDA guidance.

The Principles document concludes by presenting 14 scenarios that describe possible company communications and relates the scenarios to the nine Principles.


The Principles are likely to form the basis for dialogue with others impacted by these proposals, including physicians, medical societies, hospitals, health plans and pharmaceutical benefit managers. Those seeking to represent the interests of consumers can also be expected to weigh in on whether the Principles establish the right limits.

The fact that the trade associations have gone public with these ideas may indicate that they have chosen not to try to negotiate directly with the FDA or that attempts to negotiate have not been fruitful. The Principles may also serve to provide input to future courts as they try to establish limits on FDA authority in the absence of agency action.

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Difficult Choices for Healthcare Providers as California Legalizes Assisted Suicide

By John LeBlanc, Partner, Healthcare Litigation | Andrew Struve, Partner, Healthcare Litigation | Lydia Mendoza, Associate, Litigation

California's "End of Life Option Act" (the Act) went into effect this June—making California the fifth state (behind Oregon, Washington, Vermont and Montana) to allow terminally ill adults with fewer than six months to live to receive drugs that will allow them to end their life.1 Under the Act, a physician can only prescribe the drug—it must be self-administered by the patient.2 Physicians who prescribe the drug consistent with the Act are legally protected from charges of assisted suicide, homicide and elder abuse.3 Although the law is supported by the vast majority (76%) of California residents,4 it has raised issues of concern from physicians who may be asked to prescribe these drugs.

Specifically, some physicians have asserted that the Act raises ethical challenges because they believe that actively assisting a patient's death violates their professional oath.5 Dr. Neil Wenger, an internal medicine doctor and director of the UCLA Health Ethics Center, noted that the Hippocratic Oath specifically forbids providing poison to kill someone.6 Dr. James Hinsdale, chief of staff at Good Samaritan Hospital in San Jose, states: "There is no circumstance upon which I would sign a lethal prescription."7

Other physicians point out that, based on the experience in other states that allow physician-assisted suicide, the number of patients requesting aid-in-dying drugs is low, and the number of patients who actually take the drugs after receiving them is even lower. As noted by Dr. Kurt Wharton, an obstetrician-gynecologist, "[i]f you look at Oregon, it's not an option that is highly utilized—it's very infrequent … a number of people who sign up for the medication never take it."8 This sentiment is shared by Dr. Jay Lee, head of the California Academy of Family Physicians, who noted that "[f]or most of us this may be a once or twice in a lifetime, or in a career, situation."9 Oregon records show that between 1998 to 2015, 1,545 prescriptions were issued, but only 991 were used. In the state of Washington in 2014, prescriptions were given to 176 patients, but the drugs were taken by only 126 of those patients.10 Based on these numbers, California analysts estimate that 1,476 Californians will obtain prescriptions in the first year.11

In June 2015, the California Medical Association (CMA), which had previously opposed the enactment of any law that would require a physician to aid in the death of a patient, changed its position to neutral. CMA President Dr. Luther F. Cobb wrote, "[t]he decision to participate in the End of Life Option Act is a very personal one between a doctor and their patient, which is why CMA has removed policy that outright objects to physicians aiding terminally ill patients in end-of-life options…. [w]e believe it is up to the individual physician and their patient to decide voluntarily whether the End of Life Option Act is something in which they want to engage."12

On a similar note, Governor Jerry Brown, a former Jesuit seminary student, explained his decision to approve the bill in a letter to members of the California State Assembly: "In the end, I was left to reflect on what I would want in the face of my own death. I do not know what I would do if I were dying in prolonged and excruciating pain. I am certain, however, that it would be a comfort to be able to consider the options afforded by this bill. And I wouldn't deny that right to others."13

Op-Out Provisions for Healthcare Providers

Taking into account the opposition received from religious-affiliated healthcare systems and other medical providers, compliance with the law is strictly voluntary and healthcare providers, including hospitals and physician groups, may choose not to participate without risk of liability or other penalties. Upon notice, healthcare providers may also prohibit employees, independent contractors or other persons or entities, including other healthcare providers, from participating in the Act while on premises owned, managed or controlled by the prohibiting healthcare provider.14 Providers may also prohibit employees and independent contractors from participating in the Act, regardless of location, while acting within the course and scope of their employment with the prohibiting healthcare provider.15 If the provider fails to provide notice, however, the provider cannot enforce the prohibition.16

If an individual or entity violates a properly noticed prohibition, those persons may be penalized in accordance with the rules, policies and practices of the provider, including loss of privileges, loss of membership, suspension, loss of employment or termination of lease or contract.17 However, the Act precludes a provider from prohibiting any other provider, employee or independent contractor from participating in the Act while on premises that are not owned, managed or controlled by the prohibiting provider—or while acting outside the scope of their employment or contract with the prohibiting provider.18

California's 48 Catholic or Catholic-affiliated hospitals and hospices have already announced that neither those facilities nor the physicians who practice there will participate in the Act. Lori Dangberg, vice president of the Alliance of Catholic Health Care explained: "[t]hough we do not participate in activities intended to hasten the end of life, we respect the personal nature of end of life decisions and make no obligation for patients to begin or continue life-sustaining treatment if it is not their wish to do so."19 Similarly, in declining to participate in the Act, Dignity Health issued the following statement: "In alignment with 'Our Statement of Common Values' written 20 years ago, physician aid-in-dying is not part of our mission. There is no obligation to begin or continue treatment, even life-sustaining treatment, if from the patient's perspective it is an excessive burden or offers no reasonable hope of benefit. Death is a sacred part of life's journey; we will intentionally neither hasten nor delay it. For this reason, physician-assisted suicide is not part of Dignity Health's mission."20

In addition to Catholic-affiliated medical systems, neither Medicare nor Veterans Affairs will participate in the Act because the federal government is prohibited from funding aid in dying. However, California Department of Health Care Services spokeswoman Katharine Weir reports that Medi-Cal—California's version of the federal Medicaid program for low-income residents—will cover the cost of the drugs without relying on any federal money.21 The state has allocated $2.3 million for an estimated 443 Medi-Cal patients who are expected to request the drugs within the fiscal year.22

Institutions that will permit physicians to participate in the Act include University of California San Francisco (UCSF) Medical Center, Sutter Health and Kaiser Permanente. Most recently, the board of directors of Pasadena's Huntington Hospital—which has more than 800 affiliated physicians—voted to participate in the Act.23 The board did so over the recommendation of the facility's medical leadership, who had approved an amendment to the hospital's rules in late April saying that "Huntington Hospital has chosen not to participate in the Act." In a press release, the hospital explained the change in position: "After careful evaluation of the law, its consequences, what is right for our community and — most important — what is consistent with our vision to serve our community with kindness and dignity, our board of directors determined that Huntington Hospital will continue to participate in the End of Life Option Act."24 Although the hospital has decided to participate in the Act, individual doctors will remain able to opt out.

Impact on Health and Life Insurers

Although healthcare providers may opt out of the Act, health insurers may not discriminate against qualifying individuals who elect to take an aid-in-dying drug. The Act specifically precludes the "sale, procurement or issuance of a life, health, or annuity policy, healthcare service plan contract, or health benefit plan" from being "conditioned upon or affected by" a person requesting an aid-in-dying drug.25 The Act further clarifies that death resulting from the administration of an aid-in-dying drug is not "suicide" for legal purposes, but should be considered "natural death" and treated as such with respect to the administration of insurance.26 Accordingly, the health and/or life insurance of an individual who takes an aid-in-dying drug shall not be affected or invalidated on the grounds that the individual committed "suicide."27

The Act does not require the prescription drugs, which can run between $3,000 to $5,000, to be covered by an individual's health insurance. To date, Anthem Blue Cross, Blue Shield of California, Kaiser Permanente and Health Net have all confirmed that their plans will pay for the costs.28

1Only "qualified individuals"—meaning those who have the capacity to make medical decisions, who are residents of California and who are able to satisfy all of the statute's requirements—may make the request. The person must have a terminal disease, defined as "an incurable and irreversible disease that has been medically confirmed and will, within reasonable medical judgment, result in death within six months." In addition, the person must have the "capacity to make medical decisions," must make the request on their own behalf and have the "physical and mental ability to self-administer" the drug. Health & Saf. Code § 443.1(q).

2Health & Saf. Code § 443.18.


4According to a poll conducted in August 2015 by the Institute of Governmental Studies at UC Berkeley, 76% of respondents supported the proposed legislation. Similarly, a statewide Field Poll of registered voters in which respondents were read a summary of the law showed that 65% of voters favored the law, 27% opposed and 8% had no opinion. These findings are echoed nationwide: a May 2015 Gallup Poll found that 68% of Americans support physician-assisted "suicide" of terminally ill patients.

5The Act does not authorize a physician or any other person to perform a mercy killing or active euthanasia—physicians are only authorized to prescribe the drugs that must be self-administered. Health & Saf. Code § 443.18.

6Soumya Karlamangla, "As California's End of Life act goes into effect, some doctors question where to draw the line," L.A. Times, June 6, 2016.

7Tracy Seipel, "California's right-to-die law: Why some doctors will refuse to prescribe lethal drugs," Mercury News, May 13, 2016.


9Soumya Karlamangla, "As California's End of Life act goes into effect, some doctors question where to draw the line," L.A. Times, June 6, 2016.

10Tracy Seipel, "California's right-to-die law: Why some doctors will refuse to prescribe lethal drugs," Mercury News, May 13, 2016.

11Soumya Karlamangla, "As California's End of Life act goes into effect, some doctors question where to draw the line," L.A. Times, June 6, 2016.



14Health & Saf. Code § 443.15(a)-(b).

15Health & Saf. Code § 443.15(a).

16Health & Saf. Code § 443.15(b).

17Health & Saf. Code § 443.15(c).

18Health & Saf. Code § 443.15(d).

19Melody Gutierrez, "California beginning era with new options to end life," San Francisco Chronicle, June 4, 2016.


21Emily Bazar, "A guide to California's new End of Life Option Act for patients and families," LA Daily News, June 4, 2016.

22Soumya Karlamangla, "How California's Aid-in-Dying Law Will Work," L.A. Times, May 12, 2016. However, the Act prohibits Medi-Cal, insurance companies and health care service plans from notifying individuals about the availability of an aid-in-dying drug, unless an individual (or his or her physician acting on behalf of the individual) specifically requests such information. Health & Saf. Code § 443.13(c).

23David Lazarus, "Huntington Hospital accepts California's end-of-life law," Los Angeles Times, July 29, 2016.


25Health & Saf. Code § 443.13(a)(1).

26Health & Saf. Code § 443.13(a)(2), (b).

27Health & Saf. Code § 443.13(a)(2).

28Tracy Seipel, "California's right-to-die law: Why some doctors will refuse to prescribe lethal drugs," Mercury News, May 13, 2016.

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Now You Have a Second Chance to Benefit From the "Manatt on Medicaid" Webinar Series

Click Here to View Our Medicaid Managed Care Program and Here to View Our Medicaid LTSS Program, Free on Demand. Click Here to Download the Presentations Free.

In July, Manatt Health kicked off its "Manatt on Medicaid" webinar series—an ongoing deep dive into the trends reshaping Medicaid and the entire U.S. healthcare system. We want to be sure you don't miss the important information shared during our first two sessions. If you or anyone on your team couldn't participate in the programs—or want to view them again—click below to access them free on demand:

  • The New Managed Care Rules and Their Implications. Almost three-quarters of Medicaid beneficiaries access all or part of their benefits through a Medicaid managed care (MMC) plan. The Centers for Medicare & Medicaid Services (CMS) recently made significant revisions to its MMC regulations. This program details key takeaways from the changes and what they mean for plans, providers, states and beneficiaries. Understand the new limits—and new opportunities—on pass-through payments. Explore leveraging MMC payments to advance payment and delivery system reforms. Discuss additional consumer transparency in MMC and other products on the coverage continuum. Learn about special protections for enrollees who use LTSS.
  • Reforming Medicaid's LTSS System. LTSS is undergoing massive expansion, fueled by an aging population and rising demand from individuals with disabilities and chronic conditions. This session explores LTSS's critical role in the care continuum. Learn about key trends affecting LTSS utilization and spending—and why Medicaid is disproportionately impacted. Explore state efforts to integrate comprehensive care for people who need LTSS, and examine recent developments in LTSS delivery system and payment reform.

To download hard copies of the presentations for your continued reference, click here.

As an added-value tool, Manatt Health also has prepared a nine-part analysis of the CMS final rule overhauling the regulations governing Medicaid managed care. The analysis provides a detailed look at CMS's new Medicaid/CHIP managed care regulations and their implications for states, providers, managed care organizations, consumers and other stakeholders. To download a free PDF, click here.

If you have any questions—or issues specific to your organization that you want to discuss—please reach out to any of our presenters:



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Dust off Those DRA Policies! FCA Penalties Have Increased.

By Randi Seigel, Counsel, Manatt Health

It's time to dust off those Deficit Reduction Act (DRA) policies—and revise them to reflect the newly-increased False Claims Act (FCA) penalties.

As of August 1, 2016, the civil penalties associated with FCA violations increased dramatically. In an interim final rule,1 the Department of Justice (DOJ) announced that, under Section 3729(a)(1) of the FCA, the minimum per-claim penalty would increase from $5,500 to $10,781 and the maximum per-claim penalty would increase from $11,000 to $21,563. The Administrative Remedies civil penalty will change to $10,781 per claim. These adjusted amounts will apply to civil penalties assessed after August 1, 2016 for violations that occurred after November 2, 2015.

All Written DRA Policies Must Be Revised and Disseminated

Under Section 6032 of the DRA,2 all entities which receive or make annual payments under a State Medicaid Plan of at least $5 million must establish written policies for all employees, contractors and agents. These policies (DRA Policies) must provide detailed information about the FCA and the penalties for its violations, "any State laws pertaining to civil or criminal penalties for false claims and statements, and whistleblower protections under such laws, with respect to the role of such laws in preventing and detecting fraud, waste, and abuse in Federal healthcare programs."3 As part of their DRA Policies, entities must include information regarding their own policies and procedures for the prevention of fraud, waste and abuse. These policies and procedures must be covered in any employee handbooks.4

With the rise in the FCA penalties, all Medicaid providers and Medicaid managed care plans are required to dust off their DRA Policies and procedures whether set forth in a free-standing policy or detailed in their employee handbooks—as well as in any other compliance materials referencing FCA penalties, including training materials—and update them to include the increased penalties. The revised DRA Policies and procedures and employee handbooks must be made available to all employees. This should be done as soon as possible, but certainly no later than the end of the year, since some states, such as New York, require Medicaid providers and managed care plans to certify their compliance with the DRA annually.

Additionally, although the text of the DRA does not require that DRA Policies be disseminated to contractors and agents, the Center for Medicare and Medicaid Services (CMS) has taken the position that Medicaid providers and Medicaid managed care plans must make the DRA Policies available to all of their contractors and agents, including when they are revised. The DRA Policies may be sent to all of the contractors and agents by email or traditional mail. Alternatively, the DRA Policies may be posted on the Medicaid provider's or managed care plan's external facing website. If this is the method selected, then contractors and agents should be notified that an updated policy is available, told how it can be accessed, and informed of the expectation that the contractors and agents and their staffs are required to comply with the DRA Policies when providing services on the Medicaid provider's behalf. In other words, the contractors and agents must adopt the DRA Policies.5

Make Updating DRA Policies Part of the Annual Compliance Review

While updating DRA Policies and related training materials, it is a good time for Medicaid providers and managed care plans to perform their annual reviews of all of their compliance policies and training materials. This ensures all policies and materials are accurate and current—and can be distributed to contractors and agents at one time, in advance of any annually required certifications.

For assistance in performing your annual compliance review, please contact Randi Seigel at or 212.790.4567.

181 FR 26127.

242 USC § 1396a(a)(68).


4If an employer does not have an employee handbook, it is not required to create one under the DRA; however, if an employee handbook does exist, then it must include the DRA policies and procedures.

5CMS letter to the State Medicaid Directors, dated December 13, 2005,available at

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HHS Proposes Rule Establishing 340B Administrative Dispute Resolution Process

By Helen Pfister, Partner, Manatt Health

On August 11, 2016, the Department of Health and Human Services (HHS) released a proposed rule (the proposed rule) that would establish an administrative dispute resolution process to resolve certain types of disputes between pharmaceutical manufacturers and healthcare entities (covered entities) that participate in the prescription drug discount program established under Section 340B of the federal Public Health Service Act (the 340B program). When finalized, the proposed rule will replace the informal 340B dispute resolution guidelines that were published in the Federal Register on December 12, 1996.

The administrative dispute resolution process established by the proposed rule would cover claims by covered entities that they have been overcharged for 340B drugs by manufacturers, and claims by manufacturers that covered entities have diverted 340B drugs to ineligible patients, or that covered entities have failed to comply with the statutory provision that provides that a drug may not be subject to both a Medicaid rebate and a 340B discount.

A Decision-Making Panel Is Established

Among other things, the proposed rule establishes a decision-making body—the 340B Administrative Dispute Resolution Panel or 340B ADR Panel—within HHS to review and resolve disputes between covered entities and manufacturers. The members of the panel would vary based on the nature of the dispute at issue, but in each case would consist of three members selected from a roster of federal employees with demonstrated expertise or familiarity with the 340B program, as well as one ex-officio, non-voting member chosen from the staff of the Office of Pharmacy Affairs. After reviewing a claim, the 340B ADR Panel would be required to prepare a draft decision summarizing its findings, and the parties to the dispute would have 20 business days to respond. Once the parties have submitted comments on the draft decision letter, the ADR Panel would prepare and submit a final decision letter which will be binding upon the parties to the dispute.

Requirements Are Set for Submission of Claims

The proposed rule also establishes requirements for the submission of claims. Among other things, claims must be submitted to the 340B ADR Panel within three years of the alleged violation, and must include supporting documentation. For covered entities claiming that they have been overcharged for 340B drugs, such supporting documentation could include a 340B purchasing account invoice which shows the purchase price by national drug code (NDC), less any taxes and fees; the 340B ceiling price for the drug during the quarter corresponding to the time period of the claim; and documentation of the covered entity's attempts to purchase the drug at the 340B ceiling price, which resulted in the alleged overcharging. For manufacturers claiming that covered entities have violated the prohibition on diversion and/or duplicate discounts, such supporting documentation could include a final audit report which indicates that the manufacturer audited the covered entity for compliance with the prohibition on diversion and/or duplicate discounts, together with the covered entity's written response to the manufacturer's audit findings.

Consistent with the 340B statute, the proposed rule would permit covered entities to consolidate their individual claims, and would permit consolidated claims on behalf of covered entities by associations or organizations representing their interests so long as the covered entities are members of such associations or organizations. The proposed rule would also permit multiple manufacturers to bring consolidated claims against the same covered entity, but would not permit consolidated claims on behalf of manufacturers by associations or organizations representing them.

The proposed rule would provide for the 340B ADR Panel to facilitate requests from covered entities for information from manufacturers that is relevant to a claim that the covered entity was overcharged by a manufacturer. Such requests would have to be submitted within 20 business days of the covered entity's receipt of notice that the claim was accepted for review, and will be reviewed by the 340B ADR Panel to ensure that they are reasonable and within the scope of the asserted claim.

Finally, the proposed rule provides that HHS may publish on its website a summary of the claims that have gone through the 340B ADR process, including the names of the parties and the nature of the 340B ADR Panel's findings.

Comments on the proposed rule are due on October 12, 2016.

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The FTC and Patient Privacy, Part II: Unfair Data Practices

By Richard Lawson, Partner, Consumer Protection | Anne Karl, Associate, Manatt Health

Just last month, we discussed a recent Federal Trade Commission (FTC) case addressing deceptive practices involving patient privacy. In an extremely important decision in July, the FTC once again addressed privacy concerns in the healthcare sector.

In administrative actions brought by the FTC, the initial complaint is heard by an administrative judge, with appeals being made to the full Commission. Sitting in this appellate capacity, the FTC reversed an administrative law judge's decision that LabMD did not violate the FTC Act in securing patient data. Specifically, the FTC reversed the judge's decision that no harm had been caused by the alleged unfair disclosure of sensitive medical data.

The FTC's Claims Against LabMD

The FTC's decision comes after a long history between the parties. The FTC alleges that in two incidents that took place almost eight years ago, LabMD exposed the personal information of about 10,000 consumers. In the first incident, a file including the names, birth dates, apparent Social Security numbers, codes for medical tests and insurance information for about 9,300 individuals was allegedly exposed to public access via a peer-to-peer file-sharing service. In the second, police found hard copy documents containing the names and apparent Social Security numbers of approximately 600 people in the possession of identity thieves.

The Unfairness Theory

Most consumer protection actions brought by the FTC fall into one of two buckets: deception, and unfairness. In the case we talked about last month, Practice Fusion, the FTC's action centered on deceptive practices regarding the collection of patient data. In this new case involving LabMD, the FTC's action focused on unfair practices. The LabMD case involved allegations that LabMD failed to adequately safeguard patient data. In a significant development, the FTC set out that the unauthorized disclosure of sensitive personal data—even when not financial in nature—can constitute harm.

The FTC and the state attorneys general have for many years been heavily engaged in consumer privacy and data security matters. Most of these actions have involved data breaches where personal financial information has been improperly disclosed. They often involve issues of deception where companies are alleged to have failed to live up to the security standards they promised to consumers.

By contrast, the other main theory used by the FTC and attorneys general involves the unfairness theory, which does not necessarily require misrepresentations or omissions by a company. The FTC's enforcement authority comes in large part from Section of the FTC Act, found at 15 USC Sec. 45(a)(1), which states that:

"Unfair methods of competition in or affecting commerce, and unfair or deceptive acts or practices in or affecting commerce, are hereby declared unlawful."

While deceptive acts or practices as used in this section have long been well understood, the FTC's application of "unfair" acts or practices caused, for many years, considerable confusion. The FTC eventually issued a policy statement—later codified at 15 USC Sec. 45(n)—which states in pertinent part that no act may be held to be unfair:

"…unless the act or practice causes or is likely to cause substantial injury to consumers which is not reasonably avoidable by consumers themselves and not outweighed by countervailing benefits to consumers or to competition."

In the data breach world, it has long been understood that the unauthorized disclosure of financial information could meet the standard of "substantial injury" as used by this section. Much more ambiguous has been the idea that sensitive personal information—such as health records without any financial exposure—could qualify as "substantial injury." The FTC's decision in LabMD has made clear that under its analysis, such unauthorized disclosure can indeed qualify as harm satisfying the requirements of the unfairness test.

Unauthorized Disclosure

Key to any data breach case is an allegation that there was unauthorized disclosure, and that the disclosure was due to shortcomings in data security practices. The FTC found that LabMD had no intrusion monitoring system, provided no data security training program, lacked strong password requirements, and did not properly update its software to guard against known vulnerabilities.

Of particular concern to the healthcare industry, the FTC found that certain standards under the Health Insurance Portability and Accountability Act (HIPAA) were not followed. The FTC specifically cited the lack of compliance with the basic requirements of HIPAA's so-called "Security Rule." The FTC emphasized that LabMD failed even to conduct a risk assessment to identify vulnerabilities and implement remedies.

The Security Rule is designed to be sufficiently flexible to apply to individuals and organizations ranging from a solo practice to a national insurer, but the requirement to conduct a risk assessment applies equally to all. The FTC noted the foundational role that risk assessment plays in data security. Failure to conduct such a risk assessment—even setting aside the failure to take any affirmative steps to mitigate any risks identified—indicates a disregard for basic data security practices.


Having found that security processes were lacking, the FTC then examined the key issue as to whether or not disclosure of personal health data could constitute harm. As part of its analysis, the FTC looked to specific laws and cases governing the confidential nature of health records. The FTC examined HIPAA and the Practice Fusion agreement (the subject of last month's article) to show the established law surrounding the importance of the confidentiality of health data.

More significantly, the FTC also looked at privacy issues from outside specific healthcare laws and considered the more general provisions of tort law. Specifically, in the order that was reversed by the FTC, the administrative law judge held that:

"Even if there were proof of such harm [disclosure of sensitive medical data], this would constitute only subjective or emotional harm that, under the facts of this case, where there is no proof of other tangible injury, is not a 'substantial injury' within the meaning of Section 5(n)."

The FTC rejected this analysis in its decision. It broadly held that general privacy interests can constitute harm. As the FTC stated:

"Tort law also recognizes privacy harms that are neither economic nor physical. As explained by the Restatement of Torts, when 'intimate details of [one's] life are spread before the public gaze in a manner highly offensive to the ordinary reasonable man, there is an actionable invasion of his privacy, unless the matter is one of legitimate public interest.' [ . . . thus], one can be held liable for invasion of privacy if 'the matter publicized is of a kind that[:] (a) would be highly offensive to a reasonable person, and (b) is not of legitimate concern to the public.'"

The FTC went on to hold that:

"We therefore conclude that the privacy harm resulting from the unauthorized disclosure of sensitive health or medical information is in and of itself a substantial injury under Section 5(n), and thus that LabMD's disclosure of the [consumer data] caused substantial injury."


The consequences of this decision are quite significant. By looking beyond specific healthcare laws and cases and finding support for its decision in tort law, the FTC has sent a clear signal that this decision will have an impact in areas well beyond just patient data. Most importantly, however, the decision unequivocally states that in the eyes of the FTC, the disclosure of sensitive personal data can cause harms that are neither economic nor physical, but still satisfy the "substantial injury" requirement of Section 5 of the FTC Act. Now that the release of sensitive personal data can cause harm, without a bright line quantifiable economic harm aspect to data breaches, it can be fairly predicted that substantial litigation will ensue to determine the objective boundaries of what are very subjective concerns.

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Lovenox Case Muddies Waters on Loyalty Discount Programs

By Lisl J. Dunlop, Partner, Litigation | Shoshana Speiser, Associate, Litigation

Pharmaceutical manufacturers utilize a variety of sales and marketing techniques to maximize sales of their products. But programs including price incentives and loyalty discounts often run into antitrust risks. Historically, cases brought by disgruntled competitors could be dismissed on the basis of the "price-cost test": if the discounted price was higher than the manufacturer's costs of production, the program was effectively per se legal. Over the last several years, however, the courts have been chipping away at this doctrine, requiring a more nuanced analysis of the overall nature of marketing programs and their competitive impact.

On May 4, 2016, the Third Circuit considered the applicability of the price-cost test to a marketing scheme for Sanofi-Aventis's anticoagulant drug, Lovenox.1 Sanofi's competitor Eisai alleged that Sanofi's discount program for Lovenox was an anticompetitive de facto exclusive dealing arrangement. The District Court had granted Sanofi summary judgment on the basis of the price-cost test. The Third Circuit affirmed the dismissal of the case, but rejected the price-cost test as the basis for the decision.

Background to the Lovenox Case

During the relevant period, Lovenox was the leading treatment for deep vein thrombosis, with a market share for anticoagulants between 81% and 92%. Part of its popularity may have been due to the fact that in addition to the approved indications that it shared with competitors (including Eisai's Fragmin), Lovenox was then the only FDA-approved drug for severe forms of heart attack.

Sanofi's marketing plan was called the "Lovenox Acute Contract Value Program." Notably, hospitals were not contractually obligated to purchase from Sanofi, and there was no suggestion that Sanofi would terminate supply if a hospital did not engage in the Program. There were two aspects to the Program: a discount structure based on purchase volume and restrictive provisions.

The Program offered discounts based on the amount of the drug that hospitals bought. When a hospital bought less than 75% of its total purchases of anticoagulants, it received a flat 1% discount; more than 75%, the hospital would receive discounts ranging from 9% to 30% depending on the share of its purchases with Sanofi. For multi-hospital systems that met certain conditions for aggregating purchases across participating hospitals, the discounts ranged from 15% to 30%. Importantly, even the maximum discounts did not bring Sanofi's price below its costs, and none of the discounts had to be repaid later if volume levels were not met.

Participating hospitals also had to agree to a formulary access clause that required Lovenox to be included in the hospital's formulary. While competitors' drugs could also be included in formularies, the clause prohibited hospitals from favoring any other drugs over Lovenox.

In addition to alleging that the Program was anticompetitive, Eisai alleged that Sanofi engaged in a long-term marketing campaign spreading "fear, uncertainty and doubt" to discredit the safety and efficacy of Eisai's competitive drug, Fragmin. Eisai alleged that Sanofi paid doctors to present educational programs on Fragmin's medical and legal risks and that Sanofi's representatives claimed that Lovenox was superior to other drugs in violation of FDA regulations.

Reasons for the Court's Decision

The Third Circuit undertook a full "rule of reason" analysis of Eisai's claims, finding that the abbreviated price-cost test was inapplicable where a marketing program effectively bundled incontestable demand (hospitals' demand for Lovenox for severe heart attack indications) with contestable demand (hospitals' demand for Lovenox for other indications for which competitor drugs, including Fragmin, were approved).

The Third Circuit rejected Eisai's claims, finding that it failed to prove damage to competition as a whole. "One competitor's inability to compete does not automatically mean competition has been foreclosed."2 According to the Court, anticompetitive foreclosure takes place when a defendant's actions render consumer choice meaningless, not when consumers choose not to purchase a competitor's product. Eisai's identification of "a few dozen hospitals out of almost 6,000 in the United States" being blocked from purchasing Fragmin due to Sanofi's conduct was found to be insubstantial, particularly where the hospitals chose not to switch due to price.

The Court distinguished Eisai's claims from prior holdings of anticompetitive foreclosure in exclusive dealing cases where consumer choice was rendered meaningless because either (1) failure to comply with defendant's contractual requirements would jeopardize the customers' relationship with the dominant supplier and could result in an obligation to repay prior savings or (2) the defendant threatened to refuse to deal with the customers. Here, in contrast, the Court found that hospitals' failure to comply with the Program would merely result in a lost discount.

The Third Circuit agreed with the district court that Eisai had failed to provide evidence of output reduction and denial of consumer choice. Notably, the Court discredited evidence of price movements as sufficient evidence of anticompetitive effect. Despite the price of Lovenox being higher than Fragmin, the Court found that the price of Lovenox increased at similar rates to Fragmin and the Pharmaceutical Producer Price Index.

The Third Circuit glossed over Eisai's claims that Sanofi's alleged campaign of "fear, uncertainty and doubt" harmed competition, upholding the lower court's finding of insufficient evidence of customers' reliance on such false or deceptive statements. There was apparently no consideration of internal Sanofi documents that Eisai relied upon that included such comments that the Program was intended to "create obstacles for competitive products."3


The Third Circuit's opinion yields some interesting implications for parties implementing or facing pharmaceutical and other marketing plans. First, manufacturers should assume that the price-cost defense will only apply in very limited circumstances, such as a purely discount-based plan with nothing more. Having said this, the Court's requirement for proof beyond what was available in the Lovenox case suggests that even under a rule of reason analysis, the bar for a plaintiff to prove substantial foreclosure is very high.

Second, the details of a discount program are important. Customers should have a real choice to opt in or out of the discount program so that they will not be "foreclosed" to the defendant's competitors. Customers foregoing the discount should not fear supply disruptions or a need to repay earned discounts. Customers accepting the discount should be allowed to maintain competitors' products on lists of approved products or uses. With these safeguards, it appears that even a significant difference in the available discount (such as from 30% to 1% or zero) will not be viewed as sufficient basis for a foreclosure claim.

Finally, the Court's ready dismissal of Eisai's claims of disparagement and Sanofi's alleged FDA violation, as well as internal documents suggesting anticompetitive motives for the discount plan, suggest that such allegations need to rise to egregious levels to support an antitrust claim. This is in contrast to other areas of antitrust enforcement—such as merger enforcement or anticompetitive agreement claims—where such "hot documents" have formed the backbone of many recent cases.

1Eisai Inc. v. Sanofi-Aventis U.S., LLC et al., No. 14-2017 (3d Cir. May 4, 2016), reh'g denied (3d Cir. May 4, 2016).


3Eisai Inc. v. Sanofi-Aventis U.S., LLC, No. 08-4168 (D.N.J. Mar. 28, 2014).

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