Supreme Court Avoids Supremacy Clause Issue, Remands Medi-Cal Case Back to Lower Court

The U.S. Supreme Court has declined to hear a case involving whether health care providers and individual beneficiaries can invoke the U.S. Constitution's supremacy clause to challenge states that make Medicaid cuts.  Physicians sued California over a 10% cut to reimbursement rates in Medi-Cal, the state's Medicaid program.  Because the federal Medicaid law does not grant a private right of action, the providers argued that California had violated the supremacy clause by passing state laws that violated a federal law requiring rates that will ensure that Medicaid recipients have sufficient access to care.  Several health care organizations also argued that California had violated federal law by approving these cuts.  At the time of filing, the Centers for Medicare & Medicaid Services ("CMS") had not approved the state's cuts.  In a 5-4 decision, the Supreme Court justices decided that this case should be reviewed further by the Ninth Circuit – the court that originally heard the appeal – because CMS has now approved most of the challenged cuts.  The Supreme Court asked the Ninth Circuit to decide whether a supremacy clause action may be maintained after the challenged rates have received federal approval.  Regardless of the outcome, the Supreme Court noted that the plaintiffs could instead sue CMS under the Administrative Procedures Act.  The case is Douglas v. Independent Living Center of Southern California Inc. (No. 09-958), and the Supreme Court's decision, issued February 22, is available here.  Selina Spinos

Congress Passes Bill to Defer Physician Pay Cut

On February 17, 2012, Congress approved a conference report to H.R. 3630, a bill that cancels the Medicare physician pay cut that would have gone into effect at the end of February.  The House of Representatives voted 293 to 132 in favor of the bill, and shortly thereafter the Senate approved the bill by a 60 to 36 vote.  The bill, known as the "Middle Class Tax Relief and Job Creation Act of 2012," will now go to the President for his signature.

Without this legislation, Medicare reimbursement rates for physicians would have been reduced by 27% on March 1, 2012.  The measure cancels this pay cut for the remainder of 2012, but it does not permanently fix the physician payment system.  Permanently fixing the physician payment system will cost over $300 billion during the next 10 years.  In addition to canceling the Medicare physician pay cut for the remainder of the year, the measure includes provisions to extend unemployment benefits and extend the payroll tax cut through the end of the year. 

The bill funds the cancellation of the physician pay cut by reducing bad debt Medicare reimbursements to hospitals.  Prior to the passage of this bill, Medicare reimbursed hospitals for patient bad debts at rates between 70 and 100 percent.  The bill reduces the percentage of bad debt reimbursement rate to 65 percent.  Other decreases to cover the cancellation of the physician pay cut included cutting the Prevention and Public Health Trust Fund, reducing Medicaid disproportionate share payments, and cutting Medicare payment rates to clinical laboratories by two percent.

For more information, click here.  Megan Fanale Engel

CMS Issues Proposed Rule on Stage 2 EHR Meaningful Use Criteria

On February 23, 2012, CMS issued a proposed rule establishing the criteria that would be used to identify meaningful users of electronic health records ("EHR") for purposes of receiving incentive payments.  The Health Information Technology for Economic and Clinical Health Act  ("HITECH") permits eligible professionals ("EPs") and eligible hospitals to receive incentive payments for the implementation and demonstrated meaningful use of EHRs.

The Stage 1 final rule created core and optional objectives for demonstration of meaningful use.  For Stage 2, CMS proposed that "EPs must meet or qualify for an exclusion to 17 core objectives and 3 of 5 menu objectives. We propose that eligible hospitals and [critical access hospitals] must meet or qualify for an exclusion to 16 core objectives and 2 of 4 menu objectives." Changes in Stage 2 include the elimination of the "'exchange of key clinical information' core objective . . . in favor of a more robust 'transitions of care' core objective,"  and the elimination of the "'provide patients with an electronic copy of their health information' objective . . . [proposed to be] replaced by an 'electronic/online access' core objective." Another significant departure from Stage 1 meaningful use criteria is the proposed "[change] to the denominator of computerized provider order entry ("CPOE")" and conversion from an optional to required criterion in Stage 2.

Finally, CMS proposed that providers be permitted an additional year before required to demonstrate compliance with Stage 2 criteria. In the Stage 1 final rule, CMS "established that any provider who first attested to Stage 1 criteria in 2011 would have to begin using Stage 2 criteria in 2013." The proposed rule would "[delay] the onset of those Stage 2 criteria for those providers until 2014."

The proposed rule is expected to be published in the March 7, 2012 Federal Register. A pre-publication copy of the proposed rule is available here; more information on Stage 2 criteria may be found here. Mark Faccenda

Fifth Circuit Holds Texas Drug Law Preempted By Federal Law

On February 22, 2012, the United States Court of Appeals for the Fifth Circuit held that a Texas law governing the circumstances in which plaintiffs can bring suit against drug manufacturers is preempted by federal law.  The state law at issue is Tex. Civ. Prac. & Rem. Code Sections 87.007(a)(1) and (b)(1).  Section 87.007(a)(1) establishes a rebuttable presumption that drug manufacturers are not liable for failing to warn patients about the risks associated with their drugs if the FDA has approved the drug warning information.  However, section 87.007(b)(1) states that plaintiffs may rebut the presumption against liability if they can demonstrate that the defendant made material misrepresentations to the FDA.  The question before the Fifth Circuit was whether federal law prohibits state law claims based on the exception for "fraud-on-the-FDA" established in 87.007(b)(1).  The Fifth Circuit ultimately concluded that such causes of action are preempted because "disclosures to the FDA are 'uniquely federal' and thus beyond the states' traditional police power."  The Fifth Circuit explained that "where the FDA has not found fraud, the threat of imposing state liability on a drug manufacturer for defrauding the FDA intrudes on the competency of the FDA and its relationship with regulated entities." To read the Fifth Circuit's opinion in Lofton v. McNeil Consumer & Specialty Pharmaceuticals, click here.  Peter Leininger

INTERNATIONAL UPDATES

The European Commission Approves Joint Venture between Microsoft and General Electric to Create an Electronic Health Platform

The European Commission (the "Commission") has approved, under the EU simplified merger procedure, a joint venture called Caradigm between General Electric ("GE") and Microsoft.  The Commission declared that the joint venture is compatible with the EU common market as it will not significantly impede effective competition within the market. Caradigm will create an "extensible health intelligence platform that collects, processes, analyses and transfers relevant medical data". Microsoft and GE, through its subsidiary GE Healthcare, are both already active in the Healthcare IT sector.

The formation of Caradigm was notified to the Commission by its parent companies despite all of the parties, including Caradigm, being US corporations. This is because under the EU Merger Regulation (Regulation 139/2004) joint ventures between companies which have a combined worldwide turnover greater than 5 billion Euros (approximately $6.6 billion) are deemed to have an effect on the EU common market and so must be notified to the Commission.

For the notification of the Commission's approval, click here.  Rod Lambert and Nicola Birney

Johnson & Johnson Offers Commitments to the European Commission Regarding the Acquisition of Synthes, Inc.

Recently Johnson & Johnson has offered unspecified commitments to the European Commission (the "Commission") to try to negate competition concerns associated with its $21.3 billion acquisition of Swiss orthopaedic device maker Synthes, Inc. ("Synthes").

The Commission had announced in November 2011 that it would carry out an in depth investigation under the EU Merger Regulation (Regulation 139/2004) to consider whether the acquisition of Synthes will reduce effective competition in the EU common market. The Commission cited concerns that the acquisition would combine two of the largest suppliers of spine devices and would effectively remove Johnson & Johnson as one of Synthes' competitors for other devices, leaving other smaller competitors unable to exert sufficient competitive restraint on the merged entity.

The Commission now has until April 26, 2012 to consider the competitive effects of the acquisition and whether the commitments made by Johnson & Johnson are sufficient to alleviate any competition concerns.

For the Reuters report, click here.  For further information from the Commission's website, click here. Rod Lambert and Nicola Birney

European Medicines Agency Requires a Change of Manufacturer for 12 Drugs Previously Manufactured at Ben Venue Laboratories, Ohio

The European Medicines Agency (the "EMA") has recently finalized recommendations regarding ten medicines (Angiox, Busilvex, Vidaza, Vistide, Velcade, Ecalta diluent, Soliris, Cayston, Mepact and Torisel), all of which are manufactured at Ben Venue Laboratories, Ohio. The EMA recommended that Ben Venue Laboratories be removed as an approved manufacturer from each drug's marketing authorization. A further two medicines, Vibativ and Luminity, have had their marketing authorizations suspended until a suitable alternative manufacturing site is approved.

These recommendations follow a joint good-management-practice inspection at Ben Venue Laboratories by the UK and French medicines regulatory authorities and the US Food and Drug Administration in November 2011. The inspection found several sterility shortcomings at the site and all manufacturing at the facility has subsequently been shut down.

For the EMA's press release, click here.  Rod Lambert and Nicola Birney

Rod Lambert (rlambert@fulbright.com / +44 207 832 3606) is a partner and Nicola Birney (nbirney@fulbright.com /+44 207 832 3636) an associate in the healthcare practice of Fulbright & Jaworski International LLP in London.