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The Government Accountability Office (GAO), in a letter to members of Congress, found that the implementation of the Transitional Reinsurance Program by the U.S. Department of Health and Human Services (HHS) violates the Affordable Care Act.

The Transitional Reinsurance Program is one of three premium stabilization programs authorized by the Affordable Care Act (ACA), commonly known as the “Three Rs.” These programs were designed to soften the impact of ACA reforms, such as guaranteed availability and the prohibition against preexisting condition limitations, that brought new health risks into the insurance markets.

Section 1341 of the ACA (42 U.S.C. § 18061) directs HHS to establish the Transitional Reinsurance Program and sets forth specific amounts for HHS to collect under the program. The statute states that the Program “shall be designed so that” HHS collects $10 billion for plan years beginning in 2014, $6 billion for 2015, and $4 billion for 2016. For each year, HHS would distribute the reinsurance amounts collected under the Program to health insurance issuers based on the number of “high-risk individuals” covered under the issuer’s commercial lines of business. In addition, the statute calls for $2 billion to be collected by HHS and paid to the Treasury for 2014, another $2 billion for 2015, and $1 billion for 2016, in addition to the costs of administering the Transitional Reinsurance Program.

HHS promulgated regulations and guidance to establish the Transitional Reinsurance Program, initially stating that, in the likely event of a shortfall, it would allocate funds on a pro rata basis to reinsurance claims, the Treasury, and administrative costs. HHS later adjusted its allocation scheme to pay reinsurance claims first and to reserve collected reinsurance amounts in excess of claims to pay reinsurance claims in future years. For example, for 2014, HHS aimed to collect $12.02 billion, but collected only $9.7 billion. It paid reinsurance claims in full, amounting to $7.9 billion, which left approximately $1.7 billion in collections under the Program. HHS remitted no funds to the Treasury, and reserved the $1.7 billion in collections that exceeded claims to be used to pay reinsurance claims in future years.

In April 2016, several members of Congress sent a letter to GAO requesting its opinion on whether HHS had exceeded its authority by declining to make a payment to the Treasury. HHS’ articulated position to GAO was that the statute failed to expressly address how HHS should allocate collected funds in the event of a shortfall, and that the amounts to be paid to the Treasury were described in the statute as “in addition” to reinsurance amounts, so the Secretary had discretion to prioritize future years’ reinsurance payments over contributions to the Treasury. GAO disagreed, concluding that HHS “lacks authority to ignore the statute’s directive to deposit amounts from collections under the transitional reinsurance program in the Treasury and instead make deposits to the Treasury only if its collections reach the amounts for reinsurance payments specified in section 1341.”

In a December 10 decision, the United States District Court for the Southern District of Texas granted partial summary judgment in favor of a pharmaceutical company in a qui tam action – holding that the Relators’ discovery responses demonstrated that they could not prevail at trial on certain FCA claims.

Among other things, Relators alleged that Solvay Pharmaceutical, Inc. (SPI) violated federal and Texas false claims act statutes predicated on violation of the federal Anti-Kickback Statute (AKS), 42 U.S.C. § 1320a-7b(b). Relators alleged that SPI’s sales team paid physicians in gifts, lavish events, cash, gift cards, speaking engagements, and services, for over a decade, to induce them to write prescriptions for drugs that were reimbursed by the government.

After close of discovery, SPI filed a motion for partial summary judgment. SPI argued that: Continue Reading Negating Elements for Kickbacks: District Court in the Fifth Circuit Grants Defendant’s Partial Summary Judgment Motion

Over 40 percent of money recovered by the Department of Justice from False Claims Act (FCA) suits involve fraud against federal health care programs. More importantly, nearly 89 percent of all new FCA matters in 2014 originated qui tam lawsuits brought by whistleblowers.

Developments in FCA jurisprudence have innumerable consequences for the health care industry, and other and the industry is also open to constant legal actions brought by whistleblowers to other federal agencies such as the Securities and Exchange Commission. For a deep dive into legal developments stemming from preventing and defending whistleblower actions, check out the firm’s new “Whistleblower Watch” blog.

Some recent posts that relate specifically to health care or life science defendants are:

Sophisticated motion practice and pre-trial strategies are key to limiting liability under the FCA and other whistleblower-based actions. The firm’s Health Care Group regularly collaborates with the litigators featured on the Whistleblower Watch website, so stay tuned for cross-posts that highlight the expertise of the practitioners in this ever-important area of law.