U.S. Supreme Court to Decide Constitutionality of the Affordable Care Act

The Patient Protection and Affordable Care Act (“ACA”) became law on March 23, 2010. The ACA created sweeping reform to the health care system in the United States. The driving principles behind the ACA are to provide affordable health care to all Americans, reduce the growth of the health care costs and improve the health of our communities. While most agree that the underlying principles of the ACA are fundamentally sound, not everyone agrees with the methodology used to achieve these goals.

Opponents of the ACA have questioned the constitutionality of the law. Specifically, the challengers have argued that Congress does not have the authority to force Americans to buy health insurance. Under the “individual mandate” provision of the ACA, nearly all United States residents will be required to maintain a minimum monthly level of health insurance coverage beginning in 2014. If one fails to maintain the requisite coverage, he or she will be subject to a penalty that will be reflected in the individual’s federal tax return. Opponents believe that this penalty is nothing more than an impermissible tax that further invalidates the ACA.

Disputes involving the legality of the ACA have sprung up in federal courts across the country and have finally culminated before the United States Supreme Court. This week, the Supreme Court Justices heard an unprecedented three days of oral arguments regarding the constitutional issues potentially impacting the legality of the ACA. Today, the Justices will meet to decide the fate of the ACA. However, it will likely be several months before the Court’s decision is finalized in a formal written opinion. Until then, we are left to speculate about the outcome based on the Justices’ questions and comments during oral arguments.

Popular opinion about which direction the Supreme Court will lean has teeter beck and forth like a seesaw. Before the start of oral arguments, many believed that the individual mandate would withstand constitutional scrutiny. However, the nature and scope of the inquiries from the traditionally conservative portion of the Court coupled with the lackluster arguments advanced by the Obama administration’s lawyer have caused many to believe that the individual mandate may be in serious trouble. There is some consensus that Justice Kennedy’s vote will ultimately determine the fate of the ACA. Yet, there is no consensus about which side Justice Kennedy will ultimately support. This week’s oral arguments failed to shed light on Justice Kennedy’s position as his questions and comments seemed to acknowledge the legitimacy of positions advanced on both sides of this dispute.

I will continue to monitor the status of this important case. Once the Supreme Court’s opinion has been issued, I will provide an in-depth analysis of how the ruling impacts our health care system. In the interim, please do not hesitate to contact me regarding all of your health care law needs.

© 2012 Michael P. James, J.D., M.B.A., CSSGB

Michael James provides representation and counseling related to all facets of business enterprise and healthcare matters. For more information, you can contact Michael at mjames@michaeljameslaw.com, (810) 936-4040 or www.michaeljameslaw.com.

Proposed Reporting Requirements Aim to Shed Light on Relationships Between Physicians and Manufactures

Physicians are routinely approached by manufacturers advertising new drugs, devices and products. The costs associated with these marketing efforts are commonly absorbed by the manufacturers. What is uncommon is for the physician to request a receipt enumerating the value of the benefits he or she received during the interaction with the manufacture. Physicians also regularly invest in healthcare products. These investments reflect a commitment to improving the healthcare system through the development of innovative drugs and devices. However, information about a physician’s investments is not typically available to the public. Under a newly proposed rule, the way physicians engage with medical and pharmaceutical companies is likely to change.

The United States Sunshine Act

The Centers for Medicare and Medicaid Services (“CMS”) have proposed a new rule aimed at illuminating the relationships between healthcare providers and manufacturing and purchasing entities. According to CMS, the proposed rule is designed to address potential conflicts of interest that may negatively affect clinical integrity, reduce patient care and increase the cost of healthcare. The proposed rule has two parts.

First, manufactures that sell or distribute prescription drugs or FDA approved devices and medical supplies (“Manufacturers”) are required to annually report certain payments or transfers of value provided to physicians or teaching hospitals (“Recipients”). Second, Manufactures and applicable group purchasing organizations (“GPOs”) are required to disclose ownership or investment interests held by physicians, or their immediate family members, in the Manufacturer or GPO, as well as payments or other transfers of value to such owners or investors. In essence, Manufacturers and GPOs will be required to submit two electronic reports to CMS: one for all their payments and other transfers of value to physicians (“Transparency Reports”) and another for all their physician ownership and investment interests (“Interest Disclosures”). Ultimately, the information submitted by Manufactures will be aggregated by individual Recipient and available to the public through a searchable website.

Transparency Reports

The proposed reporting requirements for the Transparency Reports are very detailed. Manufacturer Transparency Reports must include: (1) the Recipient’s name; (2) business address; (3) specialty and NPI; (4) date of payment or transfer; (5) associated covered drug(s), device(s), biological or medical supply(ies); and (6) the form and nature of the payment. The “form of payment” includes items like cash or cash equivalents, in-kind items or services, stocks or stock options or any other ownership interest or return on investment. The “nature of payment” includes areas like consulting fees, honorarium, gifts, food/entertainment, research, charitable contributions, speaking engagements, grants or faculty. GPOs that make payments or other transfers of value to physician owners or investors are also required to use these metrics for reporting.

However, there are a number of exceptions to the required disclosures in the Transparency Reports. Manufactures and GPOs will not have to report: (1) transfers of value less than $10; (2) product samples that are not intended to be sold and are intended for patient use; (3) educational materials that directly benefit patients or are intended for patient use; (4) the loan of a covered device for a short-term trial period, not to exceed 90 days, to permit its evaluation; (5) items or services provided under a contractual warranty; (6) transfers of value to a Recipient when he or she is a patient and not acting in his or her professional capacity; (7) discounts, including rebates; (8) in-kind items used for charity care; (9) dividends or other profit distributions from a publically traded security or mutual fund; (10) payments to Recipients for health care under a self-insured plan; (11) payments for non-medical professional services when the Recipient is a licensed non-medical professional; (12) payments for services related to a civil or criminal action or administrative proceeding; and (13) transfers of value made indirectly to a Recipient through a third party when the Manufacturer is unaware of the identity of the Recipient.

Interest Disclosures

The proposed reporting requirements for Interest Disclosures are also detailed. Manufacturer and GPO Interest Disclosures must include: (1) the Recipient’s name; (2) business address; (3) specialty and NPI; and (4) the ownership or investment interest held by the physician in the company. If the ownership or investment interest is held by an immediate family member of a physician, the Interest Disclosure must provide the name of that family member. The scope of “immediate family members” is broad and includes grandparents, parents, siblings, spouses and children related to the physician by marriage, adoption or direct lineage. Applicable ownership or investment interests may be direct or indirect, and through debt, equity or other means. Generally, these interests include stocks, stock options, partnership shares, LLC memberships, loans, bonds or other financial instruments that are secured with an entity’s property or revenue.

However, not every ownership or investment interest in a Manufacturer or GPO is subject to the required Interest Disclosures. According to CMS, ownership and investment interest shall not include: (1) a publically traded security or mutual fund; (2) an interest that arises from a retirement plan offered by the Manufacturer or GPO to the physician or immediate family member through their employment with the Manufacturer or GPO; (3) stock options and convertible securities received as compensation, until the stock options are exercised or the convertible securities are converted to equity; and (4) an unsecured, subordinate loan.

The Reporting Process

The proposed rule requires Manufacturers and GPOs to start gathering information for their Transparency Reports and Interest Disclosures after the final rule is published. Currently, it is unknown when the final rule will be published. However, CMS has established that data collected for part of 2012 must be reported to CMS by March 31, 2013. Therefore, I believe that it is important for Manufactures and GPOs to develop a Transparency Report and Interest Disclosure Program (“TRID Program”) to help prepare for the upcoming reporting deadline. The TRID Program will establish protocols that allow you to track and record information related to the CMS Transparency Reports and Interest Disclosures. The TRID Program will also allow you to audit reports for completeness and accuracy in the future.

Although Manufacturers and GPOs are responsible for submitting Transparency Reports and Interest Disclosures to CMS, physicians and teaching hospitals will be allowed to review the reported information for accuracy before it is made available to the public. CMS has proposed a 45-day review period for this process. During this time, physicians and teaching hospitals will be allowed to dispute the data reported to CMS. I believe that a TRID Program may help physicians and teaching hospitals be prepared to identify and effectively challenge inaccurate reports filed by Manufactures and GPOs. The failure to correct inaccurate reports could damage a provider’s reputation in the community.

Penalties

Manufactures and GPOs that fail to submit Transparency Reports and/or Interest Disclosures face an annual penalty of up to $150,000. If a Manufacturer or GPO knowingly fails to submit Transparency Reports and/or Interest Disclosures to CMS, they could be subject to an annual penalty of up to $1 million. Overall, CMS may impose penalties for failing to report information in a timely, accurate or complete manner.

Conclusion

CMS’s proposed rule requiring Manufactures and GPO’s to file Transparency Reports and Interest Disclosures will likely affect the way physicians engage with medical and pharmaceutical companies. The requirements for both types of reports are detailed, complex and require proper planning by physicians, teaching hospitals, Manufacturers and GPOs. Affected individuals and entities should consider developing a TRID Program to ensure CMS compliance and accurate reporting. Manufactures and GPOs that are not compliant with CMS’s proposed rule could be subject to investigations and substantial penalties. Physicians and teaching hospitals that fail to ensure the accuracy of reported information could face public scrutiny, investigations and loss of goodwill in the community. Whether you are a physician, teaching hospital, Manufacturer or GPO, I am ready to help you prepare for the newly proposed transparency and reporting rule.

© 2012 Michael P. James, J.D., M.B.A., CSSGB

Michael James provides representation and counseling related to all facets of business enterprise and healthcare matters. For more information, you can contact Michael at mjames@michaeljameslaw.com, (810) 936-4040 or www.michaeljameslaw.com.