Health Highlights

The Eight Key Elements of Effective Compliance Programs

By Richard S. Hartunian, Partner, Corporate Investigations and White Collar Defense | Jacqueline C. Wolff, Partner, Co-chair, Corporate Investigations and White Collar Defense, and Co-chair, False Claims Act Practice | Randi Seigel, Partner, Manatt Health

Editor’s Note: In a recent webinar for Bloomberg BNA, Manatt examined game-changing fraud and abuse trends and cases—and revealed strategies for avoiding False Claims Act (FCA) actions. In November, we kicked off our three-part series summarizing key insights from the program with an article exploring the current state of play—and the definition of what a false claim looks like today. In December, the second article in our series revealed the innovative and aggressive enforcement techniques making the healthcare landscape more perilous than ever. This month, we conclude our series with the in-depth look below at how to build an effective compliance program.

To download a free copy of the presentation, click here.


The Purpose of Compliance Programs

Mandated compliance programs are not a new concept, but they have evolved over time. The Deficit Reduction Act of 2005 required all Medicaid providers receiving $5 million a year or more to have an effective compliance program. In 2009, New York State began requiring that certain providers and managed care plans that receive Medicaid funding of $500,000 a year or more have a compliance program in place, and several other states have followed suit. A host of other regulations make compliance programs mandatory for a full range of entities, including nonprofits (IRS 990 since 2008), federal contractors (FAR 52.203-13 since 2009), Medicare Advantage and Part D Plans (72 FR 68700 and program memos since 2009) and Accountable Care Organizations (since 2012). The Affordable Care Act also defined which entities receiving Medicaid dollars are required to have compliance programs, but the regulations around implementation are still pending.

Effective programs ensure that healthcare organizations are:

  • Operating in accordance with applicable laws and regulations
  • Creating a culture of honesty and integrity
  • Meeting high ethical and professional standards
  • Preventing fraud and abuse and other compliance issues
  • Detecting compliance issues at earlier stages
  • Assuring prompt corrective action
  • Creating a culture of ethical and compliance behavior
  • Building employee trust and confidence

The Three Purposes of a Compliance Program: Prevention, Detection and Correction

There are eight elements of effective compliance programs that fall within three buckets:

Bucket 1: Prevention

  • Written policies/code of conduct
  • Compliance officer and oversight
  • Training/education

Bucket 2: Detection

  • Reporting hotline
  • Monitoring/auditing and internal reporting
  • Nonintimidation/nonharassment

Bucket 3: Corrective Action

  • Investigations/remediation
  • Disciplinary policies

The Office of Inspector General’s (OIG’s) list includes only seven elements, because it does not cover nonintimidation/nonharassment. We have included nonintimidation/nonharassment as an eighth element on our list, however, because it is such a key component of any effective compliance program—and is required as an element by some states, such as New York.

Element 1: Written Policies/Code of Conduct

Written policies should outline compliance program expectations. They are usually embedded in a code of conduct or code of ethics that is broadly applicable to all individuals who are  employed by, interact with or serve on the board of the organization.

In addition, there should be a second document that details the operation and implementation of the compliance program, providing guidance around governance, organizational structure and processes for dealing with compliance issues. Some organizations choose to address governance and structure across multiple documents. For purposes of responding to an audit or request from a government agency, however, it is preferable to consolidate this information into a single document. Having the information in one document also simplifies the annual review of policies and procedures and helps ensure that compliance programs are evaluated and updated regularly.

We recommend that compliance plans and related documents be approved by the organization’s governing body and senior management, with that approval recorded through a resolution, meeting minutes or signatures on the policy. Policies and procedures should be reviewed and revised each year, with past versions archived.

In addition, it’s important to remember that, for policies to be effective, they must be easily available to staff—not simply stuck in the compliance officer’s binder or posted to a SharePoint site that not everyone can access. At minimum, the compliance program and code of conduct should be posted on an external website, as well as on an Intranet location that all staff can easily find.

Element 2: Compliance Officer and Oversight

The compliance officer should be a senior role with an appropriate level of autonomy. The best practice is for the compliance officer to report directly to the CEO or the board of directors. He or she should not report to the general counsel—or through operations or finance, where there could be perceived conflicts of interest.

It is critical for the board of directors to review the compliance officer and his or her functions annually and update the job description to reflect added responsibilities. Organizations that have decided to outsource their compliance functions should consider the rationale for that decision—and define how they will maintain active oversight of the compliance officer role.

In addition, the compliance officer should be supported by a compliance committee. The committee should be multidisciplinary and have a charter that details set responsibilities. Compliance committees should meet at least twice a year and ensure that all members are actively involved and accountable. Activities such as quality reporting and grievance monitoring should be reported to the committee, demonstrating that the organization is actively auditing operational activities to ensure compliance. The compliance committee should keep minutes as evidence of its activities.

As was defined in In re Caremark,1 the governing board also has responsibilities for ensuring compliance. In the 1996 case, the shareholders of Caremark International Inc. brought a derivative action alleging that directors breached their duty of care by failing to put in place adequate internal controls. As a result, the company’s employees were able to commit criminal offenses resulting in substantial fines and civil penalties.

Ultimately the court did not find that the board violated its duty of care, but this case set forth how to determine if the board has exercised its duty of care appropriately:

It’s important that the board exercises good faith judgment that the corporation’s information and reporting system is in concept and design adequate to assure the board that appropriate information will come to its attention in a timely manner as a matter of ordinary operation, so it may satisfy its responsibility.

The Business Judgment Rule—the presumption that in making a business decision, the directors of a corporation acted on an informed basis, in good faith and with the honest belief that the action taken was in the best interest of the company—governs the level of detail appropriate for an organization’s information systems. Directors are entitled to rely on their officers, employees and consultants—but have a duty to make reasonable inquiries when facts warrant gathering further information.

The role of the board is general oversight over the compliance program activities. This can be delegated to a subcommittee, but ultimately it is the board’s responsibility. For multientity organizations, it’s key that the governing entity of the subsidiary, as well as the parent board, receive reports on compliance. The board should receive regular updates from the chief compliance officer, annually assess compliance effectiveness, receive reports on audits and investigations, discuss corrective actions, and approve any changes to compliance programs.

Element 3: Training/Education

Educational programs should include training in general compliance issues; fraud, waste and abuse; the Anti-Kickback Statute (AKS); and the False Claims Act, as well as inappropriate gifts and relationships with referral sources that could put the company at risk for noncompliance. The training should be documented, including pre- and post-tests. To create a culture of compliance, training should be part of the onboarding process, as well as held annually—and be supported with monthly email blasts and in-person road shows that reinforce best practices. Compliance training and education should not just be an annual “check the box” activity.

Element 4: Reporting Hotline

It is critical to have a hotline that enables confidential and truly anonymous reporting of compliance issues. The organization may publicize reporting options, such as email, toll-free numbers and mailbox addresses, including information on the kinds of issues to report. To help publicize the hotline, the number can be placed on the email signature lines of employees, external-facing websites and posters in lunchrooms.

Element 5: Monitoring, Auditing and Internal Reporting

It is important to perform an annual risk assessment that is specific to an organization. The assessment should go beyond looking at the OIG, Centers for Medicare & Medicaid Services (CMS) and Department of Justice (DOJ) areas of focus. It should incorporate interviews with key staff to identify each organization’s particular risks, as well as look at any compliance challenges over the past 12 months and consider internal controls and accountability. Results should be presented to senior leadership and the board, with a strategy developed to determine how findings fit with other risk assessments and enterprisewide approaches. The annual risk assessment should be continuously revisited throughout the year to ensure it remains accurate in light of changes facing the organization.

As a best practice, leverage the risk assessment to create an annual monitoring and auditing internal reporting program. The assessment can be used to identify trends, support quality reviews and other operational activities, determine where expertise is lacking and third parties should be engaged, evaluate vendors, and track compliance hotline calls.

The annual compliance work plan may be broader than just auditing and monitoring. It may involve creating new policies and procedures, as well as potentially setting up ad hoc committees to look deeper into possible compliance issues. Similar to the risk assessment, the work plan is a living document and may change over the year. Any changes or updates should be documented and justified.

Element 6: Nonretaliation and Nonintimidation

Nonretaliation and nonintimidation  are crucial elements of effective compliance programs. People will not participate if they fear they will lose their jobs for reporting potential issues. The compliance officer should partner with human resources to ensure the nonretaliation and nonintimidation policies are strictly enforced.

Element 7: Investigations and Remediation

It is critical to respond quickly and thoroughly to compliance issues, because the clock starts ticking the day an organization acknowledges that it has received a potential overpayment. (If a company doesn’t act within 60 days of an overpayment being identified, it can face an FCA case. See part 1 of our series for more information.)

Investigations should be performed by qualified individuals and scoped to determine the “who, what, when and how” of the issue. It is critical that investigations identify root causes, as well as uncover and correct any areas of system vulnerability to ensure there is no further risk of overpayment. Corrective actions should be tracked to confirm that they have been effective.

Element 8: Disciplinary Policies

Clear disciplinary policies must be in place for anyone who has engaged in unlawful or unethical actions. The policies should apply consistently across all levels and positions, including employees, board members and vendors. Board members should be removed and vendors and employees terminated if any misconduct is identified. We strongly recommend that creating a culture of compliance be a performance review metric. It also is important that incentive compensation programs support a culture of ethics and compliance and don’t inadvertently encourage noncompliant behavior.

Building Successful Compliance Programs

To ensure compliance programs are effective, it is critical to:

  • Develop a culture of accountability from the top levels of the organization.
  • Hire a credible compliance officer and ensure he or she has adequate resources and direct access to the board and executive team.
  • Require that concerns be reported.
  • Build compliance into operations, including active monitoring and internal auditing—and consider using predictive modeling techniques, particularly in high-risk areas.
  • Address issues and document all information, including inquiries, complaints and repayments.
  • Evaluate all efforts.

The Price of Noncompliance

Noncompliant organizations can pay a high price. In addition to the cost of investigating issues and preparing a defense, organizations have the expense of repayments, as well as potentially massive fines and penalties. They also face bad publicity, a degraded reputation, operational restrictions, corporate probation and increased regulatory scrutiny. In addition, executives may find themselves looking at jail time.

Demonstrating Program Effectiveness

Meticulous documentation of compliance programs is essential. It is critical to document:

  • All compliance policies, plans and other documents that describe the entity’s approach to managing its compliance program
  • The results of regular self-assessments, which should be performed at least annually
  • Descriptions of operational functions that interact with the compliance program
  • All compliance committee and board resolutions, agendas and minutes related to compliance oversight
  • Compliance training and communications initiatives
  • Hotline information, logs and follow-through activities
  • Compliance auditing/monitoring reports, trends and corrective action plans
  • Summaries of incidents, as well as self-reporting and disclosures
  • Evidence that recurring issues are being addressed and compliance standards are being enforced

Reducing the Risk of Violating the Law

There are several actions that organizations can take to mitigate the risks of potential noncompliance. Most critically, be sure to have counsel review any arrangements that raise potential AKS and Stark issues. Counsel also should review valuation reports for adherence to legal principles. Other key actions organizations can take to protect themselves include:

  • Using qualified experts to determine fair market value in sensitive cases
  • Responding quickly to AKS problems to avoid FCA liability
  • Using state OIG self-disclosure protocols or the CMS voluntary refund process, when appropriate
  • Engaging outside auditors or reviewers to perform audits or reviews when internal expertise is lacking or not available

1In re Caremark Int’l, 698 A.2d 959, 1996 Del. Ch. LEXIS 125 (Del. Ch. Sept. 25, 1996) 

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Part 2: Megatrends Reinventing How Providers Think

By Helen R. Pfister, Partner, Manatt Health | Sandy W. Robinson, Managing Director, Manatt Health | Annemarie V. Wouters, Senior Advisor, Manatt Health | Adam M. Finkelstein, Counsel, Manatt Health

Editor’s Note: In a recent webinar for PharmaVOICE, Manatt Health revealed the megatrends reinventing the life sciences industry—and how they relate to new thinking by patients, providers and payers. We kicked off our three-part series summarizing the program in December, with a look at the megatrends for patients. In part 2 of our series, below, we explore the megatrends for providers, with a detailed look at the 340B program, and in February, we will focus on the payer segment.

To view the full webinar free on demand, click here. To download a free copy of the webinar presentation, click here.


What Is the 340B Program—and Which Entities Are Covered?

The 340B program, established under federal law in 1992, enables eligible healthcare providers and programs, known as covered entities, to purchase outpatient drugs at discounted rates. According to the congressional report that accompanied the legislation, the program’s purpose is to help covered entities “stretch scarce federal resources as far as possible, reaching more eligible patients and providing more comprehensive services.”

The following entities are eligible to participate in the 340B program:

  • Disproportionate Share Hospitals (DSHs), cancer hospitals and children’s hospitals with a disproportionate share adjustment percentage greater than 11.75%
  • Sole community hospitals and rural referral centers with a disproportionate share adjustment percentage greater than 8%
  • Critical access hospitals
  • Federally-qualified health centers (FQHCs) and FQHC look-alikes
  • Family planning projects funded under Section 1001 of the Public Health Services Act
  • Ryan White clinics
  • State AIDS drug assistance programs
  • Black lung clinics
  • Hemophilia treatment centers
  • Native Hawaiian health centers and urban Indian organizations
  • Federally funded sexually transmitted disease and tuberculosis clinics

Which Patients Are Eligible for 340B Drugs?

In 1996, the Office of Pharmacy Affairs—the agency within the Health Resources and Services Administration (HRSA) that administers the 340B program—issued guidelines, published in the Federal Register, that set forth three requirements for patients to be eligible for 340B drugs:

  1. The covered entity must maintain records of the patient’s healthcare;
  2. The clinician providing services to the patient must be an employee of the covered entity or provide healthcare under another arrangement so that the responsibility for care remains with the covered entity; and
  3. Other than for hospitals, the services must be consistent with the services for which the covered entity receives the grant funding that qualifies it for covered entity status.

The guidelines also make it clear that individuals cannot qualify as patients of a covered entity for 340B purposes if the only healthcare service they receive from the covered entity is the dispensing of drugs for self-administration or administration in a home setting.

In 2007 and again in 2015, the Office of Pharmacy Affairs issued guidance that would have revised and narrowed the definition of 340B-eligible patients, but the guidance was never finalized, and the original definition remains in place.

How Can Covered Entities Dispense 340B Drugs?

Covered entities can dispense 340B drugs through in-house pharmacies, or through contract pharmacy arrangements with one or more outside pharmacies. Under a contract pharmacy arrangement, a covered entity buys drugs at 340B prices and ships them to the contract pharmacy, and the contract pharmacy dispenses the drugs to the covered entity’s patients.

Initially, the Office of Pharmacy Affairs restricted contract pharmacy arrangements to one contract pharmacy per covered entity. That restriction was later lifted, and covered entities now may contract with multiple contract pharmacies.

Two other significant restrictions apply to covered entities:

  • The Group Purchasing Organization (GPO) exclusion prohibits DSH hospitals, children’s hospitals and cancer hospitals that participate in the 340B program from purchasing outpatient drugs through a GPO.
  • The prohibition on duplicate discounts prohibits a drug from being subject to both a 340B and a Medicaid discount.

The Impact of the Affordable Care Act (ACA)

The Affordable Care Act contained several provisions with implications for the 340B program. Among other things, the ACA:

  • Expanded covered entities to include qualifying children’s hospitals, critical access hospitals, freestanding cancer hospitals, sole community hospitals and rural referral centers; and
  • Exempted orphan drugs from the 340B definition of “covered outpatient drugs,” making them ineligible for 340B discounts.

Current 340B Issues

Effective as of January 1, 2018, Medicare Part B reimbursement for 340B drugs (other than pass-through drugs and vaccines) was reduced from average sales price (ASP) plus 6% to ASP minus 22.5%. Children’s hospitals, freestanding cancer clinics and sole community hospitals were exempted from the reduction. The American Hospital Association, the Association of Academic Medical Centers, America’s Essential Hospitals and several hospitals brought a lawsuit against the Department of Health and Human Services (HHS) in November, arguing that the payment reduction violates the Social Security Act. On December 29 (after the date of the webinar), a federal judge allowed the cuts to take effect, but that decision has since been appealed.

In addition, there are two pending 340B regulations:

  • The Civil Monetary Penalties Rule would impose civil monetary penalties on pharmaceutical manufacturers that intentionally overcharge covered entities for 340B drugs. The final rule was published January 5, 2017, but its effective date has been repeatedly delayed, most recently to July 1, 2018.
  • The Administrative Dispute Resolution Rule (proposed rule published August 12, 2016, and not yet finalized) would establish an administrative dispute resolution process to resolve claims by covered entities that have been overcharged for 340B drugs.

Looking Ahead

What can we expect to see for the 340B program as we look to the future? The program has been caught up in the larger debate around prescription drug prices, and policymakers have renewed their focus on 340B, particularly for DSH hospitals. Most recently, on January 10, 2018, the House Energy and Commerce Committee released a 79-page report that provides recommendations for how the program could be improved.

Whether any of these recommendations will result in changes to the program is an open question, particularly given the Trump administration’s restrictions on issuing additional regulations. However, any proposed changes will be almost certain to draw strong reactions from both the powerful pharmaceutical company and hospital lobbying organizations.

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Potential Impacts on Telehealth From Net Neutrality Repeal

By Lisl J. Dunlop, Partner, Antitrust and Competition | Richard P. Lawson, Partner, Consumer Protection | Shoshana S. Speiser, Associate, Litigation

On December 14, 2017, the Federal Communications Commission (FCC) passed the Restoring Internet Freedom Order (RIFO), repealing the FCC’s 2015 “net neutrality” rules and shifting the responsibility for regulating the conduct of Internet service providers (ISPs) to the Federal Trade Commission (FTC) under the antitrust and consumer protection laws. While RIFO’s impact on video streaming seems to be at the top of most consumers’ minds, telehealth experts are concerned that the decision could raise the costs of providing telehealth services, hindering the development of such services.

The New Regulatory Structure Under RIFO

Under net neutrality, ISPs were prohibited from throttling speeds or blocking or slowing down specific Internet content. RIFO replaces a regime based on rules with one based on potential enforcement. RIFO specifically states that “antitrust law and the FTC’s authority under Section 5 of the FTC Act to prohibit unfair and deceptive practices” will protect against potential consumer and competitor harm.

Rather than prohibit ISPs from discriminating against certain content, RIFO contains transparency measures to ensure that ISPs disclose information about their practices relating to issues like blocking websites, throttling delivery speeds, prioritizing delivery and managing congestion to consumers, entrepreneurs and the FCC. Accordingly, the onus will be on the FTC and other enforcers to police the ISPs and ensure that they are delivering what they promise. The remedies will likely follow traditional FTC consumer protection remedies for deceptive statements. For example, it would be deceptive if an ISP states that it does not throttle when in fact it does, and an unfair act could include a unilateral change in a material term of a contract. State attorneys general are also expected to be active in enforcement efforts.

In addition, RIFO opens the door to antitrust enforcement. The FTC and the Department of Justice’s Antitrust Division have the power to prosecute ISPs under the Sherman Act for conduct that damages competition in markets for provision of content to consumers. For example, if an ISP has market power in ISP markets and restricts its customers’ access to the content of a multichannel video distributor or online video distributor with which the ISP competes (such as could be the case with large, vertically integrated ISPs), it will likely face investigation and enforcement action under the antitrust laws. The FTC also could challenge such conduct as an “unfair method of competition” under Section 5 of the FTC Act.

The FCC, however, has not been completely eliminated from regulating the ISP market. According to the Memorandum of Understanding (MOU) between the FTC and FCC, the FCC will still monitor the broadband market, identify market entry barriers, review informal consumer complaints, and investigate and take enforcement action against ISPs that fail to comply with RIFO’s requirements to file with the FCC or display on a publicly available, easily accessible website the specified subjects of disclosure. The MOU also provides that the agencies will continue to coordinate and discuss consumer and industry outreach and educational efforts, potential investigations, and enforcement actions under each agency’s jurisdiction to prevent duplicative or conflicting actions.

Potential Implications for Telehealth

FCC Chairman Ajit Pai was in favor of abolishing net neutrality, believing it would increase Internet innovation and flexibility that would allow for prioritization of content important to consumers, such as telehealth. According to an FCC spokesperson, for “Internet-enabled healthcare apps and services, paid prioritization could be the difference between life and death for patients who require very reliable and fast connectivity for health monitoring, consultation, and service delivery” and RIFO will “unleash innovation and investment in networks, providing better connectivity for rural and underserved hospitals and reducing costs everywhere.”

But such claims assume that telehealth providers will be in a position to pay for priority. Telehealth and healthcare experts and advocates are concerned that the end of net neutrality could lead to prohibitively high Internet costs. Providers require connectivity to practice telehealth and rely on the Internet for data storage to support the use of government-mandated electronic medical records. Telemedicine has been praised as a solution for patients in rural areas where healthcare access is limited. Net neutrality has ensured that telehealth services are not deprioritized in favor of deep-pocketed alternatives. RIFO may lead to higher rates for the bandwidth required to deliver these services.

While larger providers may be able to budget for Internet prioritization costs or pass them on to patients, increased costs may discourage federally qualified health centers and rural health centers from providing these services and could force them to reduce or eliminate them. Even if hospitals are not priced out, patients in rural and underserved areas may find higher connectivity prices cost-prohibitive. Either way, the reduction of telehealth services may further exacerbate health disparities between high- and low-income patients, particularly in rural areas.


It remains to be seen exactly how the end of net neutrality and the new regulatory structure will play out and impact telehealth. Only days after the FCC abolished net neutrality, a federal bill was proposed to restore net neutrality’s bans on the blocking and slowing of websites. Similarly, Democratic senators are rallying to secure the votes necessary to pass a resolution to revive net neutrality. Critics, however, are skeptical that this effort will be successful due to lack of votes in the House and President Trump’s veto power.

Some states also are working to revive net neutrality by introducing bills to forbid Internet providers from blocking or slowing down sites or online services. To date, six states have introduced bills and at least two others are considering them. The states, however, face an uphill battle, and state laws could be subject to court challenges because the FCC’s order blocks states from creating their own net neutrality laws. According to the FCC, differing state laws would be too difficult for an ISP to follow because the Internet does not recognize state borders. The states counter that they have an obligation to protect consumers and that the FCC lacks the authority to pre-empt all states. Both state attorneys general and private parties are also expected to sue the FCC. For now, it is important to keep apprised of the developments and their potential impact on telehealth.

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New Webinar: What Are the Megatrends Shaping Data-Driven Healthcare?

Join Us on February 27 from 1:00 – 2:00 p.m. ET—and Discover How Applying Analytics Can Help You Achieve Your Strategic Goals. 

For state health programs, payers, providers and life sciences companies, data and analytics have become essential to facilitating efficient and effective healthcare delivery. The right data assets and analytics expertise are core requirements for ensuring access to care, optimizing population health initiatives, and achieving quality and financial goals.

Which healthcare megatrends have transformed using data and analytics from an option to a necessity? How are public and private healthcare organizations collecting, sharing, analyzing and applying data to meet their strategic objectives? What do you need to know about what’s next in analytics to stay ahead of the curve? Find out at a new Manatt webinar, “The Promise of Data-Driven Healthcare: Megatrends for 2018.” During the session, you will:

  • Discover the healthcare megatrends driving the need for more targeted and actionable analytics.
  • Gain key insights into how these megatrends impact your ability to meet your strategic goals.
  • Learn best practices for navigating the challenges and opportunities associated with data and analytics megatrends.
  • Explore how healthcare leaders are strategically developing and implementing long-term plans for sustainable data and analytics capabilities.
  • Find out what the future holds for healthcare data and analytics—and what new developments mean for your organization.


Valerie Barton, Managing Director, Manatt Health
Laura Braslow, Director, Manatt Health
Kevin McAvey, Senior Manager, Manatt Health

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Gene Therapy: Pipeline of Possibilities but Challenges for Pricing

By Sandy W. Robinson, Managing Director, Manatt Health


One of the therapeutic areas in development that represents the greatest scientific promise is gene therapy. Gene therapy’s potential is particularly exciting in the possibilities it holds for transforming and curing debilitating diseases that, in some cases, can lead to premature death.

While the terms gene therapy and cell therapy are often confused, the Food and Drug Administration’s Center for Biologics Evaluation and Research (FDA’s CBER), which regulates cellular therapy products, human gene therapy products and certain devices related to cell and gene therapy, distinguishes them through the following definitions.

Cellular therapy products include cellular immunotherapies, cancer vaccines, and other types of both autologous and allogeneic cells for certain therapeutic indications, including hematopoietic stem cells and adult and embryonic stem cells. Human gene therapy is the administration of genetic material to modify or manipulate the expression of a gene product or to alter the biological properties of living cells for therapeutic use. CBER has approved both cellular and gene therapy products. A list of approved products may be found here.1

The number of cellular and gene therapies under development in the U.S. continues to grow. According to the Journal of Gene Medicine, as of 2017, there were 2,597 clinical trials being run related to gene therapy. Close to 1,700 (65%) are focused on oncology, 287 (11.1%) in the monogenetic field, 182 (7%) in infectious diseases and 180 (6.9%) in the cardiovascular category. While oncology is attracting much of the trial work, monogenetics is the low-hanging fruit for gene therapy technologies.

Pricing Challenges

Gene therapies face the challenge of pricing to value, with the need to balance their transformative or even curative potential with their high cost. Few of the diseases for which gene therapies are used are curable, many are life limiting—and all are expensive to treat. Comparing a high-cost curative therapy with a lower-cost ameliorative therapy starts to raise some interesting financial questions—and to shape the conversation around reimbursement.

Adding to the complexity is the proliferation of governmental and nongovernmental value- assessment organizations—some of which have very short timelines relative to return on investment and many of which impose budget constraints. We weren’t certain how value-assessment organizations would view very expensive but curative therapies until now.

Two Recent Case Studies

1.         Novartis Pharmaceuticals Kymriah™ (tisagenlecleucel)

On August 30, 2017, Novartis received FDA approval for Kymriah, the first chimeric antigen receptor T-cell (CAR-T) therapy, for the treatment of patients up to 25 years of age with B-cell precursor acute lymphoblastic leukemia (ALL) that is refractory or in second or later relapse. Kymriah is a one-time treatment that uses a patient’s own T cells to fight cancer.2 The cost of Kymriah is $475,000.

On the day of FDA approval, Novartis went public with a press release announcing an outcomes-based payment arrangement with the Centers for Medicare & Medicaid Services (CMS), indicating that CMS will only pay Novartis when patients respond to treatment within one month. The CMS press release was much more general, reiterating its commitment to using its authority through the CMS Center for Medicare & Medicaid Innovation (CMMI) to alleviate regulatory barriers in Medicare and Medicaid to testing payment and delivery models involving value-based arrangements. State Medicaid agencies remain interested in pursuing these types of arrangements, and CMS has pledged to work with stakeholders to develop an outcomes-based payment template.

The details of the contractual arrangement between CMS and Novartis have not been revealed. In September 2017, several members of congress called for additional information.3

2.         Spark Therapeutics LuxturnaTM (voretigene neparvovec-rzyl)

On December 19, 2017, the FDA approved Spark Therapeutics’ Luxturna, a one-time gene therapy product indicated for the treatment of patients with confirmed biallelic RPE65 mutation-associated retinal dystrophy. This is the first virus vector gene therapy approved in the U.S.4

Luxturna works by delivering a normal copy of RPE65 to the retinal cells, allowing them to produce the protein needed to restore the patient’s vision. The cost for Luxturna has been listed at $850,000.

Institute for Clinical and Economic Review

The Institute for Clinical and Economic Review (ICER) is an independent nonprofit research institute that produces reports analyzing the evidence on the effectiveness and value of drugs and other medical services. ICER’s mission is to help provide an independent source of analysis of evidence on effectiveness and value to improve the quality of care that patients receive while supporting a broader dialogue on value in which all stakeholders can participate fully.

According to ICER, its evaluation reports include evidence-based calculations of prices for new drugs that accurately reflect the degree of improvement expected in long-term patient outcomes, while also highlighting price levels that might contribute to unaffordable short-term cost growth for the overall healthcare system. ICER has struggled with evaluating treatments for rare diseases and in fact is revising its evaluation framework for orphan diseases.

ICER undertook an evaluation of Luxturna, with the Evidence Report assessing the comparative clinical effectiveness and value of Luxturna released on January 12, 2018, and findings scheduled to be discussed in a public meeting on January 25, 2018.5 The evidence report found that:

“Evidence on voretigene neparvovec provides high certainty of at least a small net health benefit for patients with biallelic RPE65-mediated retinal disease; however, significant uncertainty remains about the long-term effects and durability of the responses to treatment.

“Assuming a 10–20-year benefit of treatment for 15-year-olds—the average age of patients in the clinical trials—economic analyses found that, at the current price of $850,000, use of the treatment would exceed common cost-effectiveness thresholds…

“Separate analyses suggest that voretigene neparvovec meets standard cost-effectiveness thresholds when treating only three-year-old patients and accounting for both direct medical costs and broader societal benefits…”

ICER also published a draft evidence report in December on CAR-T cell therapies, including a review of Novartis’s Kymriah. The findings of ICER’s analysis suggest that the CAR-T therapies of focus for the review provide gains in quality-adjusted and overall survival over alternative chemotherapies. With the evidence available at the time of the report, “these therapies seem to be priced in alignment with clinical benefits over a lifetime time horizon. However, the findings are sensitive to the time horizon and long-term benefit forecasting of the therapies.”

Potential Solution

In light of numerous treatments on the horizon, Manatt is developing a proposal to create and explore options for creating an entity that would allow private and public payers to share in the cost of certain high-cost therapies across payers and over time. The facility would spread the cost of the therapy over all participating payers throughout the years of benefit. For more information, please contact Sandy W. Robinson at






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New Webinar: What Are the Top 10 Medicaid Trends to Watch?

Since its inception 51 years ago, Medicaid has evolved from a small welfare program into an integral part of the nation’s health insurance system. Today, Medicaid is the country’s largest insurer and the single largest payer in every state, covering more than 20% of the U.S. population. Although it is unquestionably an essential part of the nation’s insurance foundation, Medicaid is facing profound challenges in 2018—from potentially dramatic changes in its financial structure to a possible rollback of the expansion option introduced under the Affordable Care Act (ACA).

In a new webinar, Manatt Health will reveal the top 10 Medicaid trends—and their implications—that you need to watch in 2018 and beyond. During the session, you will:

  • Discover the 10 major trends transforming Medicaid—and what new forces are emerging.
  • Gain key insights into each trend’s evolution—from its current status to its anticipated impact.
  • Explore how the 10 trends will affect the full spectrum of healthcare audiences—including states, providers, plans, pharmaceutical manufacturers and patients.
  • Examine the potentially radical changes that could redefine the federal/state partnership, as well as Medicaid’s role as a coverage program for low-income populations.
  • Understand how Medicaid is addressing today’s most critical healthcare issues, from coping with the opioid crisis to targeting social determinants of health to driving increased accountability for care quality and efficiency.


Deborah Bachrach, Partner, Manatt Health
Patricia Boozang, Senior Managing Director, Manatt Health
Melinda Dutton, Partner, Manatt Health
Cindy Mann, Partner, Manatt Health

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FDA and Digital Health: Understanding New Guidance Documents

By Alice (Ali) Loveys, Senior Advisor, Manatt Health

Draft Guidance on Clinical and Patient Decision Support Software

The Federal Drug Administration’s (FDA’s) Center for Devices and Radiological Health (CDRH) is now accepting comments on its December 8, 2017 Draft Guidance for Industry and Food and Drug Administration Staff on Clinical and Patient Decision Support Software (CDS and PDS).1 The draft guidance was issued in response to the 21st Century Cures Act’s amended definition of a medical device.

The revised definition of a medical device reflects new and expanding technologies in the healthcare marketplace. The FDA is seeking specifically to clarify its interpretation of what constitutes decision support software, as well as its intended regulatory oversight. The FDA also is clearly defining PDS software as software intended for use by patients or caregivers or other non-healthcare professionals. By clarifying the definitions, the FDA can delineate recommendations for its role in regulatory oversight.

The overarching theme of the guidance is that devices that simply gather publicly available recommendations and present them to a person based on established patient characteristics or drug profiles will not be deemed medical devices. In those circumstances, patients could independently find all the information on their own.

The FDA uses the Cures Act’s first three criteria to define decision support software and differentiate it from a device:

  • Not intended to acquire, process or analyze a medical image or signal from an in vitro diagnostic device or a pattern or a signal from a signal acquisition system;
  • Intended for the purpose of displaying, analyzing or printing medical information about a patient or other medical information (such as peer-reviewed clinical studies and clinical practice guidelines); and
  • Intended for the purpose of supporting or providing recommendations to a healthcare professional about prevention, diagnosis and treatment of a disease or condition.

It then adds a fourth criterion to exclude certain software from meeting the definition of a device:

  • Intended for the purpose of enabling such healthcare professional to independently review the basis for such recommendations that such software presents so that it is not the intent that such healthcare professional rely primarily on any such recommendation to make a clinical diagnosis or treatment decision regarding an individual patient.

This added criterion establishes the function of software allowing independent clinician review. The FDA specifically carved out PDS to exclude it from FDA-intended regulatory oversight regarding premarket clearance and/or approval. The guidance draft document provides examples of software functions that will remain under FDA regulatory purview.

The FDA is accepting comments and suggestions regarding this draft guidance document for 60 days post-publication. Once finalized, the FDA recommendations will be incorporated into other FDA guidance documents.

Draft Guidance for SAMD

In a second document also released on December 8, 2017, the FDA provides finalized guidance for software as a medical device (SAMD) for clinical evaluation.2 The document reflects a standardized approach to terminology, a risk categorization framework and a process for evaluating SAMD devices. The guidance aligns with the International Medical Device Forum (IMDF). It precedes FDA publication of regulatory approaches to SAMD devices for public comment.


As healthcare vendors seek greater interoperability with existing platforms and work to gain and grow international market share, it is to their benefit to carefully review both documents within the framework of their existing products. This is the time to give important feedback and suggestions to the FDA that ultimately will impact final regulations.



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Five Key Elements for Combating the Opioid Crisis Locally

By Jonah P. B. Frohlich, Managing Director, Manatt Health | Christopher Cantrell, Manager, Manatt Health

Editor’s Note: A staggering 20 million adults in the United States have a substance use disorder (SUD), yet 88% do not receive treatment for their conditions. Local communities are experiencing the human and economic costs of the opioid epidemic firsthand, especially rural communities, where the opioid-related death rate is 45% higher than in metro areas. Unable to wait for federal action, cities and counties are designing, funding and launching innovative local programs—almost all built and operated on a shoestring budget. In a new article for Modern Healthcare, summarized below, Manatt Health reveals the five key elements that successful programs share. Click here to read the full article.

The article highlights findings from a new Manatt Health report, supported by the Robert Wood Johnson Foundation, “Communities in Crisis: Local Responses to Behavioral Health Challenges.” Drawing from extensive research and interviews with local program leaders, the report provides detailed profiles of 13 local initiatives, as well as a comprehensive taxonomy categorizing program elements and features. Click here to download the report and taxonomy.


President Trump’s declaration of a public health emergency to address the opioid epidemic brought renewed attention to a crisis that claimed more lives last year than annual deaths from car crashes and gun violence combined. The lack of adequate treatment to address the SUD epidemic most acutely impacts local communities, often through rising rates of incarceration, homelessness, use of the criminal justice system, and utilization of emergency departments (EDs) and first responder services.

Cities and counties are responding to the opioid crisis by developing community-driven programs that connect individuals to treatment and social support services. Successful local programs share five key elements.

1. Collaboration and Alignment of Local Resources

Individuals with behavioral health conditions interact with a multitude of public and private institutions during the course of treatment or a crisis, often leading to a fragmented system of care that inhibits coordination across settings and providers. Successful programs overcome these challenges by identifying shared priorities and focusing on promoting collaboration and alignment of funding and resources, including through safe and secure information sharing among participating partners.

2. Establishment of a Holistic System of Care

Clinical treatment for behavioral health disorders is far less likely to be successful if it does not take into account the full spectrum of social service needs, such as housing, nutrition and employment assistance. Successful programs seek to connect individuals to Social Security, Medicaid and housing benefits to enable access to services during and after treatment to support recovery.

3. Navigation Across Settings

Accessing and navigating behavioral healthcare across myriad public and private settings can be challenging for individuals with SUDs. Successful programs invest in case workers and coordinators who create care plans and help clients navigate across settings to access the services they need.

4. Community Engagement and Advocacy

The social stigma associated with behavioral health disorders can be a barrier to accessing care and affordable housing, resulting in many individuals becoming homeless, cycling through the justice system and ending up in EDs. Strong community engagement is necessary to overcome this stigma in order to build support for community-based treatment as an alternative to incarceration and repeated emergency responses to behavioral health crises.

5. Leveraging Both Public and Private Financing

Many cities and counties are challenged to secure sufficient funding to respond to the crisis in their communities. Some localities are overcoming this obstacle by weaving together a patchwork of public and private funding streams, including state and local general funds, targeted assessments of taxes, grants from local health system community benefit programs and philanthropies, and federal programs.

Although Medicaid is the single largest funder of behavioral health services, most local initiatives have not leveraged the full complement of Medicaid-reimbursable services. This gap suggests a need for better communication and coordination among local program leaders and state Medicaid agencies.

Looking Ahead

The SUD crisis is not abating and continues to devastate communities across the country. Local initiatives are making a difference, but the challenge is evaluating them and spreading those that show promise by tapping into funding and expertise across public and private stakeholders.

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