CMS Rescinds Prohibition on Certain DMEPOS Consignment Closets
CMS has rescinded Transmittal 300, dated September 1, 2009, which would have imposed limitations on physicians' ability to enter into consignment closet arrangements with durable medical equipment, prosthetics, orthotics, and supplies (“DMEPOS”) suppliers. Under a traditional consignment closet arrangement, a DMEPOS supplier retains responsibility for goods maintained for convenience purposes in a physician’s office. Transmittal 300 would have required that physicians, rather than the DMEPOS supplier, bill for any items under his or her own billing number. The rescinded policy would have required that DMEPOS title be transferred to the physician at the time such goods are provided to the patient and would have imposed DMEPOS service and other patient follow-up requirements on the physician rather than the DMEPOS supplier. The rescinded compliance standard would have taken effect on March 1, 2010. A copy of Transmittal 300 may be found here. Mark Faccenda

HHS Awards $100 Million to States for Children's Health Care
The Department of Health and Human Services ("HHS") announced that $100 million in federal grant funds will be provided to ten states in order to improve the quality of health care for children enrolled in both Medicaid and the Children's Health Insurance Program ("CHIP"). The Children's Health Insurance Program Reauthorization Act of 2009 ("CHIPRA") provided federal funding for states to assist them in implementing and improving provider performance measures and the development of other quality improvement initiatives. The following ten states will receive grants: Maine, Oregon, Pennsylvania, North Carolina, Florida, Massachusetts, Colorado, Utah, South Carolina, and Maryland. Eight of the ten states will test a new set of children's health quality measures, while seven of the ten states will use the grant funds to implement health information technology ("HIT") strategies. Furthermore, two states will be asked to devise a new pediatric electronic health record format. The grants will be awarded over a five year period. For further information, visit the HHS web site here. India Brim

OIG Finds No Kickback Violations in Discounts at Network Hospitals
The Health and Human Services Office of Inspector General ("OIG") in three advisory opinions found no violations of the Anti-Kickback Statute or grounds for civil monetary penalties for Medigap policy providers that receive discounted services at network hospitals. These advisory opinions involved financial arrangements between Medigap policy providers and managed-care organizations with hospital networks. Under these arrangements, the network hospitals give the Medigap providers up to 100% discounts on Medicare Part A inpatient deductibles that their policies would otherwise cover. Returning some of the savings, the Medigap providers offer policyholders who stay at network hospitals a $100 credit toward future premiums. The OIG determined that while these provider benefits and beneficiary inducements could implicate the Anti-Kickback Statute and civil monetary penalties, they were a low risk of fraud or abuse. Also, the discounts neither affect medical services nor give a competitive advantage to network hospitals. The OIG concluded that these specific arrangements may even result in lower costs for all policyholders. To view the advisory opinions, click here, here, and here. Selina Spinos

FTC Likes Odds in Pay-For-Delay Suits
Two recent cases brought by the Federal Trade Commission (“FTC”) challenging reverse payment settlements in the pharmaceutical industry may have a greater chance of an FTC victory than past challenges, according to Mike Kades, an attorney adviser to FTC Chairman John Leibowitz. In a reverse-payment settlement, brand-name drug companies pay generic drug companies to not make a generic version of the drug. Critics of the agreements say they hurt competition by keeping generic drugs off the market longer, while defenders say they are a necessary result of the patent system, and are actually pro-competitive.

Last year the FTC lost a case challenging the settlements in the United States Court of Appeals for the Eleventh Circuit, where the court ruled that a reverse payment deal between Schering-Plough Corporation and a generic drug maker was legal. Other courts have also upheld these types of settlements. While the FTC is attempting to overturn legal precedent, the two pending FTC cases may offer better facts for the agency. One case alleges that a pharmaceutical manufacturer paid off four generics competitors to keep them out of the U.S. market for several years. The second case alleges that a different pharmaceutical manufacturer reached a reverse settlement in the form of co-promotion and backup supply deals, rather than a simple payment. Because of the structure of the payments in the second case, the FTC is essentially accusing the manufacturer of sharing its monopoly profits directly with its would-be competitors. This makes the FTC’s position stronger.

If the FTC were to win in either case, the court would be likely examine the competitive effects of patent settlements when making its decision. A possible compromise would allow reverse payment settlements to continue, but give generic drug companies permission to enter the market earlier than the expiration of the patent. This would preserve the rights of companies to enter into the settlements, while also providing some benefits to consumers. For more information, please click here. Anne McNamara

Eon Labs to Pay $3.5 Million to Settle False Claims Allegations Regarding Billing for “Less Than Effective” Drugs
On February 25, 2010, the Department of Justice announced that it reached a settlement with Eon Labs, Inc. regarding allegations that the company submitted false claims to the Massachusetts Medicaid program for its Nitroglycerin Sustained Release (“Nitroglycerin SR”) capsules. According to the DOJ, in 1999, the FDA published a notice stating the drug “lacked substantial evidence of effectiveness” and from that point on, the drug was not eligible for reimbursement from the Massachusetts Medicaid program. The government alleges that Eon Labs submitted false quarterly reports that misrepresented Nitroglycerin SR’s regulatory status and therefore caused false claims to be submitted to the Massachusetts Medicaid program. According to the DOJ, under the settlement agreement Eon Labs will pay $3.5 million to resolve the false claims allegations, approximately $525,000 of which will go to the relator. In a press release, Carmen Ortiz, U.S. Attorney for the District of Massachusetts, emphasized that "[t]his is the first False Claims Act agreement with a drug company that sought to charge the government for less than effective drugs, and it shows that the Department of Justice will pursue those who market such drugs and expect the government to pay for them." To read the press release, click here. Peter Leininger