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Medical Devices, Drugs Sidelined in Anti-Kickback Proposal (1)

Oct. 10, 2019, 9:41 AMUpdated: Oct. 10, 2019, 10:01 PM

There was one unanswered question in the highly anticipated anti-kickback proposed rules issued Oct. 9 by the Trump health agency: whether the medical device and drug industries get protections. For now, the answer is no.

The anti-kickback statute currently prohibits payments for recommending products or services to patients covered by Medicare or Medicaid and is meant to protect against fraud and abuse.

The Trump administration proposed several new safe harbors for doctors and hospitals to ease compliance barriers and encourage health providers to collaborate on patients’ overall health. The changes are intended to be the gateway to “value-based care,” which focuses on paying physicians for the improving overall health outcomes rather than for individual services.

But the proposal explicitly excludes “pharmaceutical manufacturers; manufacturers, distributors, or suppliers of durable medical equipment, prosthetics, orthotics or supplies (DMEPOS); and laboratories.” This exclusion largely goes against a recommendation by the leading device association AdvaMed in a May letter to the Department of Health and Human Services.

The trade group says that the current anti-kickback laws make it hard for all involved—including hospitals, health care systems and medtech companies—to have a clear understanding of the roles they can play in value-based health care agreements.

The exclusion in the proposed rule doesn’t apply to other medical technologies such as those related to remote patient monitoring, mobile, and digital health.

The exclusion for drug and medical equipment manufacturers may not be permanent. The HHS wants to study the issue and figure out which types of devices, drugs, or companies should get an exemption. The device industry officials say they expect to get some type of safe harbor in the final rule.

“Our understanding of the differentiation in medical devices is that [the government] wants to have space for comments during the open comment period on the role of health technology,” said Medical Alley spokesman Dan Wade. Medical Alley is another device association representing major tech companies such as Medtronic PLC.

Giving device and drug companies the green light to enter into arrangements with health providers to coordinate on patient care is hugely important to the device industry in particular.

One of AdvaMed’s suggestions—a safe harbor for value-based warranty arrangements—made it into the proposed rule.

The agency also included AdvaMed’s request for new safe harbors related to exchanges and arrangements with financial risks.

Providers can be eligible for three new safe harbors that address value-based care arrangements: one for arrangements that focus on improving quality, health outcomes, and efficiency; one for arrangements that take on “substantial downside financial risk"; and one for arrangements that take on full financial risk for their patients’ health-care spending, according to the rule.

Medtech industry officials told Bloomberg Law that the anti-kickback statute now limits manufacturers’ ability to improve care coordination and accountability through new partnerships with providers and hospitals. They want to team up with health providers to offer the use of their devices and take part in payment mechanisms that are based on how well the devices work. For now, they’ll have to wait.

All the proposed changes will need to go through a notice-and-comment period before being finalized. Comments on these proposals are due 75 days after the rule officially posts to the Federal Register.

More Feedback Sought

AdvaMed is still encouraged by the move from the HHS, despite being uncertain on what types of devices will or won’t make the final rule.

“HHS is welcoming feedback on whether certain devices or all devices should be excluded from what they’re offering,” Terry Chang, a spokesman for AdvaMed, said to reporters on an Oct. 9 call. “There’s also a part where they say they’re considering separate proposed rules specific to devices.”

The HHS Office of Inspector General, which issued the proposal on exemptions to the anti-kickback statute, said it’s concerned that some device companies are “heavily dependent upon practitioner prescriptions and referrals” and “might misuse the proposed safe harbors primarily as a means of offering remuneration to practitioners and patients to market their products.”

But the administration is open to suggestions. For example, it poses a question in the proposed rule of how certain types of device manufacturers would be able to contribute to care coordination. “Our upcoming comments will help explain the value they add,” AdvaMed’s Chang said.

The administration said it’s also working on safe harbor protections to allow outcomes-based arrangements for drugs, but that work is not finished.

Penalties for violating the current anti-kickback statute can be up to $25,000 and a potential five-year prison sentence per violation in addition to $50,000 in civil penalties per violation and three times the amount of government overpayment.

More Protections

The HHS did, however, include protections for hospitals’ donations of cybersecurity technology and services to physicians’ practices, according to a fact sheet. They would replace the separate waivers currently needed for each model.

The proposal would also make permanent an existing safe harbor for hospitals and doctors’ offices exchanging electronic health records, according to Eric Hargan, the agency’s deputy secretary.

To contact the reporter on this story: Ayanna Alexander in Washington at aalexander@bloomberglaw.com

To contact the editor responsible for this story: Fawn Johnson at fjohnson@bloomberglaw.com