October 2011 Health Law Update

October 31, 2011

Center for Medicare Services (CMS) Issues Final Rules
on Accountable Care Organizations (ACO)

CMS recently issued final rules on ACOs (under the Medicare Shared Savings Program) that encourage a variety of health care providers to form networks to deliver more efficient care.  Initially, CMS proposed that ACO’s share not only in the cost savings generated, but also the risk that costs would increase, which would require ACO’s reimburse the cost overages. Under the final rule, ACO’s will not be penalized if they do not generate savings, but will still share in savings generated.   Also, there is no longer a threshold amount of savings required before ACO’s become eligible to share in the savings.  In addition, CMS adopted a prospective beneficiary assignment that provides to ACO’s a list of expected beneficiaries assigned to the group every three months.  Under the new regulations, ACO’s will have thirty-three performance measures, as opposed to the sixty-five initially proposed, to track for savings. The new rules also allow ACO’s some measure of flexibility when establishing a legal entity under state or federal law.  ACO’s will also have the opportunity to seek approval of unorthodox management structures that may create more efficiencies.  CMS also established an advance payment ACO model for rural and small hospitals that do not have sufficient capital to organize a ACO.  CMS will begin accepting applications for the shared savings program on January 1, 2012.

SciClone Proposes Settlement to Class Action Lawsuit
Arising from Alleged Violations of the FCPA

SciClone Pharmaceuticals announced a proposed settlement of three shareholder derivative actions that arose from allegations that SciClone violated the Foreign Corrupt Practices Act (“FCPA”).  The FCPA makes it illegal for a company to pay foreign officials in exchange for steering business to the company.  The SEC and the DOJ are actively investigation these allegations.  In May 2011, SciClone disclosed the results of its own internal investigation into the allegations, which revealed problems with its China operations.  Specifically, the report noted the company lacked sufficient internal controls to assure compliance with the FCPA.  The report singled out SciClone’s China operations indicating that there was a lack of transparency between the company’s China operation and the operations in the U.S., such that U.S. management did not have sufficient useable information about the Company’s activities in China.

LHC Settles Alleged Medicare Violations for $65 Million

LHC Group, a home health care provider, will pay $65 million to settle a Medicare investigation into whether some of its care was “medically necessary”.  In 2010, the Wall Street Journal reported that Medicare data of many home health care providers appeared to boost the number of visits to a threshold where they received higher reimbursements.  LHC was also the target of a false claims act lawsuit.  As part of the settlement, the company entered into a consensual compliance program that including auditing, training and monitoring.

Three Pharmaceutical Companies Hit by $162.5 Million Verdict  After
Three Patients Develop Hepatitis C from Propofol

A Nevada jury awarded three colonoscopy patients $162.5 million against a Teva subsidiary, along with Baxter Healthcare and McKesson Corp, for selling the anesthetic Propofol in a manner that caused the patients to contract Hepatitis C.  The verdict arose after a previous lawsuit resulted in a punitive damages award of more than $500 million.  Although Teva plans to appeal the verdict, the company has also agreed to pay damages on behalf of Baxter and McKesson.   The patients in the Nevada litigation alleges that Teva sold Propofol in large vials to encourage physicians to reuse the vials.  Reuse caused the risk of spreading blood-borne diseases.

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