On September 27, 2010, President Obama signed into law the Small Business Lending Act which contains a new anti-fraud provision that will significantly change how the Center for Medicare and Medicaid Services (“CMS”) bills for services. Under the new provision, CMS will be required to end its 45 year policy of approving claims quickly without first verifying that the services were actually provided and that the claims submitted are not the product of fraud.

The new law requires CMS, which pays out $500 billion annually in Medicare and Medicaid claims, to adopt new billing software with “predictive modeling” by next year in hopes of reducing fraud. Predictive modeling software is currently used by the credit card industry to detect questionable bills and stop payments if fraud is suspected. Under CMS’s current system, nicknamed “pay and chase” by government officials, over $60 billion dollars per year are lost to fraud. By implementing predictive modeling software, CMS will be alerted to suspicious claims, providers, and facilities before payment is rendered, thereby allowing CMS to stop payment on these claims and investigate whether fraudulent activity has taken place.

CMS will start the competitive bidding process by software manufacturers in January of 2011 and will begin phasing in the technology in the 10 states with the highest rates of Medicare fraud by July 2011. Additionally, CMS will require its Medicare contractors to use the new technology for claims processing for hospitalization and outpatient services, the bulk of Medicare’s costs. The new law provides that the Department of Health and Human Services track the actual savings to the Medicare program after implementation of the software for one year. At that time, should Congress find that the savings are significant, funding will be expanded to allow the program to be used in 10 additional states.

The new law comes at the same time as CMS unveiled new proposed regulations to crack down on fraud. The proposed regulations would make it easier for CMS to suspend payments to providers. Under the proposed rules, payments to providers can be suspended upon a showing of “credible allegations” of fraud that merit further investigation, including tips from consumers. Additionally, the proposed rules would require state Medicaid programs to stop using medical providers that have been kicked out of Medicare or another state’s Medicaid program.

The proposed rules also include a ranking system of all types of medical providers within the Medicare system by their risk for engaging in fraud. The providers with the highest risk would be required to undergo fingerprinting and criminal background checks before engaging in business. The rules also provide that all new home health agencies and home-health equipment suppliers that are not publicly traded will be subject to this increased screening.

For more information regarding Health Care Reform and its effect on Medicare and Medicaid regulations please contact us at contact@fuerstlaw.com.

The U.S. Food and Drug Administration (FDA) and Centers for Medicare and Medicaid Services (CMS) recently announced in a Federal Register Notice that they are considering establishing a parallel review process for medical products, including pharmaceuticals, biologics, and medical devices. The goal of the parallel review process is to reduce the time between FDA marketing approval or clearance decisions and CMS national coverage decisions (“NCDs”). Currently, FDA will first conduct a premarket review that assesses the safety and effectiveness of the medical products. CMS conducts a second review to determine whether the medical product will be covered by Medicare.

The agencies envision that the manufacturer of a specific medical product will request that the agencies undertake the parallel review process and the agencies will then both provide their agreement to participate in the parallel review process. The FDA would make its approval or clearance determination first because CMS would not normally provide coverage to a medical product that was not approved or cleared by the FDA. Each agency will continue to use its own regulatory and evidentiary standards for decision-making. The medical product sponsor would be expected to meet the legal requirements for both the FDA and CMS.

The agencies are seeking comments from the public on what products would be appropriate for parallel review, what procedures should be developed, how a parallel review process should be implemented, and any other issues related to operation of the process. In addition, the agencies are announcing the intent to begin a pilot program for parallel review of medical devices. All electronic or written comments must be submitted by December 16, 2010.

For more information on how FDA and CMS review medical products and how the parallel review process may be beneficial to your product, please contact us at contact@fuerstlaw.com.

NeoStem, Inc. (“NeoStem”) recently announced the appointment of Thomas Einhorn, M.D., Chairman of Orthopaedic Surgery at Boston University to its Medical Advisory Board. NeoStem is an international biopharmaceutical company that is engaged in the development of stem cell-based therapies and building a network of adult stem cell collection centers in the United States and China that allow people to donate and store their own stem cells for their personal use in the event of a future medical need. Dr. Einhorn’s professional focus has been on the repair and regeneration of bone and cartilage using autologous adult stem cells, reconstructive surgery of the hip and knee, and the treatment of metabolic bone disease making him an excellent addition to NeoStem’s Medical Advisory Board.

Dr. Einhorn is Chairman of the Department of Orthopaedic Surgery and Professor of Orthopaedic Surgery, Biochemistry and Biomedical Engineering at Boston University. To date, he has authored over 200 peer-reviewed articles during his career. Dr. Einhorn has a distinguished career which includes serving as Chairman and President of numerous orthopaedic research societies and foundations. In addition, he has won numerous awards and served as Deputy Editor for Current Concepts Reviews for The Journal of Bone and Joint Surgery, and on the Editorial Boards of The Journal of Bone and Mineral Research, Journal of Orthopaedic Research and Bone.

Wayne A. Marasco, M.D., Ph.D., Chairman of NeoStem’s Advisory Boards, stated, “We are extremely pleased to have Dr. Einhorn join our medical advisory board. His in-depth understanding of orthopaedic injuries and the use of adult stem cells to regenerate damaged bone and cartilage will be a tremendous asset in our development of applications of adult stem cells for orthopedic injuries.”

Dr. Einhorn stated, “I am excited to join the Medical Advisory Board of an innovative, forward-looking company like NeoStem and be part of the team of experts to help advance stem cell technologies in the field of orthopaedics and assist in developing VSEL™ Technology applications for orthopaedic disease. Not only has [NeoStem] put together a promising base of technologies for future stem cell treatment in orthopaedics, cardiac, skin rejuvenation and the treatment of wounds but it continues to partner with experts in other areas to facilitate meaningful [Research and Development]. This should encourage people to collect, process, and store their stem cells through NeoStem’s existing network of collection centers in anticipation of a variety of future personalized medicine applications.”

The Patient Protection and Affordable Care Act, signed into law on March 23, 2010, will make it easier for the federal government to investigate and prosecute health care fraud and increase penalties for violations. The new bill provides for more than $350 million over 10 years to reduce healthcare fraud and abuse while easing prosecutions, strengthening sentencing guidelines, and expanding the False Claims Act.

The bill eliminates the need for prosecutors to prove actual knowledge of or specific intent to violate the law under the federal Anti-kickback Statute (42 U.S.C. § 1320a-7b) and the federal health care fraud statute (18 U.S.C. § 1347). The Bill is likely in response to the 9th Circuit Case, Hanlester Network v. Shalala, which provided for heightened standards of intent. Prosecutors will also be able to issue administrative subpoenas for the production of documents.

Kickbacks and offenses in violation of Section 301 of the Federal Food, Drug and Cosmetic Act (21 U.S.C. § 331) will now be considered Federal Health Care Fraud Offenses. Further, those suspected of obstructing a criminal investigation of federal health care fraud may have their assets frozen, while those who obtain property from the commission of fraud w have their personal property subject to forfeiture.

The bill will also change the definition of “intended loss” under the Federal Sentencing Guidelines. Section 2B1.1(b)(1) of the guidelines provides that the loss from fraud is calculated as either the actual loss or intended loss whichever is greater. While courts in the past have calculated “intended loss” as the amount actually paid by the government or payable under government fee schedules, the new bill allows for the dollar amount of fraudulent bills submitted to constitute prima facie evidence of intended loss. The result will be heightened sentencing for white collar criminals in health care. Further, the statute will increase the offense level for defendants convicted. Changes include:
• A two-level increase in the offense level for losses of $1 million or more.
• A three-level increase in the offense level for losses of $7 million or more.
• A four-level increase in the offense level for losses of $20 million or more.

The False Claims Act will also be strengthened by the reform statute. Claims arising from a violation of the Ant-Kickback statute will now expressly constitute violations of the False Claims Act, regardless of whether the wrongdoer submits the claim. The bill also strengthens the Act by allowing for whistleblowers to bring suits and restricting the public disclosure bar (providing that disclosures made in criminal, civil or administrative hearing or in government reports, hearings, audits and investigations bar a federal FCA suit) to federal government hearings, reports, audits and investigations. Finally, the FCA will be applicable to payments made by the American Health Benefit Exchanges if they include federal funds and civil penalties for exchange-related FCA liability will be 3 to 6 times the amount of damages.

Additional Provisions include:
• The ability to suspend pending Medicare and Medicaid payments to providers and suppliers pending investigations into allegations of fraud.
• Civil monetary penalties for knowingly making false statements to enroll as a provider or supplier in a federal health care program.
• Mandatory compliance programs for providers and suppliers.
• HHS oversight of Medicaid and Medicare Parts C and D.
• Exclusions from Medicaid for companies or individuals that control entities that have not repaid overpayments, have been suspended, terminated, or excluded from participation, or are affiliated with an entity that has.
For more information regarding Health Care Reform please contact us at contact@fuerstlaw.com.

On July 23, 2010, Administrative Law Judge Eleanor M. Hunter entered a Final Order in the case of Las Mercedes Home Care Corp v. Agency for Health Care Administration. The Order declared invalid a rule requiring Medicaid providers of home health agencies to issue either W-2 or 1099 tax forms to individuals on their staffs.

Las Mercedes is a licensed home health agency in Florida and was an enrolled Medicaid provider of home health services from July 1, 2004 through June 30, 2006. The company works with patient physicians to determine the type and scope of home health services needed and arranges for such services to be provided through one of 22 companies with which it maintains staffing agreements.

The suit began in response to a September 30, 2008, Final Audit Report issued by ACHA which sought $878,843.93 in Medicaid overpayments and a fine of $1,000. Soon afterwards, Las Mercedes requested an administrative hearing and the case was referred to the Division of Administrative Hearings (DOAH) in November and set for hearing in February. Following numerous continuations, the AHCA Motion to Amend Final Audit Report was granted on June 24, 2009.

After additional discovery, Las Mercedes filed a Motion to Dismiss arguing that the AHCA rule requiring that Medicaid home health agencies issue W-2 or 1099 forms to individuals conflicted with Statutory authority. In response to an AHCA objection to consideration of the validity of the rule, Las Mercedes filed a rule challenge case; the two cases were then consolidated.

The challenged rule is a provision from the Florida Medicaid Home Health Services Coverage and Limitations Handbook, which has been incorporated by reference by Florida Administrative Code Rule 59G-4.130. The rule requires Home Health services to be provided by professionals who are directly employed by or under contract with a home health agency enrolled in Medicaid Home Health Services program and provides, “Employed or contracted means that the home health agency provides a W-2 of 1099 tax form for the individual.”

Attorney Andrew Ittleman of Fuerst Ittleman, on behalf of Las Mercedes, alleged that the Rule was an invalid exercise of AHCA authority because it (1) went beyond AHCA’s powers, (2) contradicted the Florida Statute 400.463(9) definition of “employed by or under contract with” and (3) was arbitrary and capricious.

After determining that the DOAH had jurisdiction to determine the validity of Medicaid rules, the court found that none of the purported statutes authorized AHCA to regulate the business relationship between a home health agency and its employees or contractors. Accordingly, the Court held that the Rule goes beyond the scope of AHCA powers.

The court then found that the “direct employee” definition provided in Section 400.462(9), which includes, “…an employee for whom a management company that has a contract to manage the home health agency on a day-today basis…” contradicted and precluded the AHCA definition of the same term. Further, there was no indication that the Legislature or federal government had intended for the AHCA to create its own more restrictive definition.

Finally, the court ruled that the additional requirement under the AHCA Rule was an irrational and illogical methodology for ensuring health, safety, and welfare, and curbing fraud, waste, and abuse. Thus, the court voided the rule established on page 1-8 of the Florida Medicaid Home Health Services Coverage and Limitations Handbook as an invalid exercise of delegated legislative authority.

For more information regarding the AHCA, Medicaid, or administrative agency regulations please contact us at contact@fuerstlaw.com.

Bio-Nucleonics, Inc., a leading Florida company specializing in radiopharmaceuticals, medical devices and imaging agents, gave a hearty “Thanks” to Fuerst Ittleman in its most recent issue of BioBulletin, the company’s newsletter.

Fuerst Ittleman recently assisted Bio-Nucleonics with gaining FDA approval for the company’s new Doral, Florida product manufacturing facility. The FDA’s approval certifies that Bio-Nucleonics uses “current Good Manufacturing Practice” (cGMP) in all its production at this state-of-the art facility.

The FDA also gave approval to Bio-Nucleonics for its proposed release criteria and timeframes for specific lot release tests to be completed prior to shipment of finished drug products. The importance of this ruling is that no material is lost to radioactive decay and each dose can be shipped immediately to the customer.

FHI assisted Bio-Nucleonics with both of these efforts. We found it such a pleasure to work with clients who were as knowledgeable, dedicated, and thorough as the team at Bio-Nucleonics, and we’re glad that they liked working with us, too. To see the entire BioBulletin newsletter, click here.

Let Fuerst Ittleman help guide your company to its next success. For more information, contact us today at 305.350.5690 or contact@fuerstlaw.com

This week has seen the publication of two reports of groundbreaking results in the field of stem cell research.

Scientists at San Diego California’s Salk Institute for Biological Studies have published a report in Nature describing the creation of induced pluripotent stem (iPS) cells.  Dr. Juan Carlos Izpisua Belmonte’s team applied gene therapy techniques to correct defective cells from patients afflicted with Fanconi anemia.  The team reports that the created iPS cells are indistinguishable from human embryonic stem cells.  Although the research has not yet been used in humans, the iPS cells create hope that such correction might be done to the diseased cells of Fanconi anemia patients. Upon correction, the cells could be reintroduced to the patient, without risk of rejection, to rid the patient of the affliction.

Chinese Scientists at the Shanghai Institute of Biochemistry and Cell Biology have created iPS cells adaptable to the human body from the tissue of pigs.  Similarly, the iPS cells resulting from the Chinese team’s procedure are identical to embryonic stem cells.  Researchers believe that these results accomplish a necessary step towards the use of pigs to generate human-compatible organs.  Some also think this research could enable human-like simulations of human diseases and thus a platform for drug and biologic testing which would be as much like a human clinical trial as possible.

View the reports here:
http://www.nature.com/nature/journal/vaop/ncurrent/pdf/nature08129.pdf

http://jmcb.oxfordjournals.org/cgi/content/abstract/mjp003

Original Article: Mitchell S. Fuerst: Foreign Bank Accounts and the IRS [pdf]

Four primary orthopedic implant companies that have been accused of violations to the federal anti-kickback laws are no longer the subject of the U.S. Attorney’s office’s federal oversight and have also been dismissed from criminal allegations that surgeons had received enormous sums of money as incentives to use their devices.

To avoid prosecution, the companies had agreed to accepting rigorous regulatory compliance procedures and a monitoring program by the federal government. Those agreements drew a great deal of criticism to U.S. Attorney Christopher Christie, when it was revealed that the former Attorney General, John Ashcroft, was appointed by Christie to a monitoring program contract estimated to be worth up to $52 million. Christie, the Republican gubernatorial nominee hopeful, faced some tough questions about his relationship to, and the appointment of federal monitoring program supervisor – former federal Judge Herbert J. Stern. Judge Stern and his law firm were responsible for contributions of more than $20,000 to Christie’s campaign fund.

When asked about the current relationship in light of the circumstances, Christie simply dismissed the matter as, “typical political stuff …”

After federal prosecutors discovered incidents where orthopedic surgeons had received consultation fees upwards of $200,000 a year for the promotion of products from orthopedic implant companies, the U.S. Attorney’s office pursued formal criminal charges alleging the actions were a violation of federal anti-kickback laws that govern Medicare provisioned hospitals and healthcare professionals.

According to the federal prosecutors, the medical device companies were using the consulting agreements as a cover-up for payoffs to use specific implant products for artificial hip or knee replacement operations. Furthermore, the U.S. Attorney’s office claim that these payments and fees are commonplace in the industry and may also be accompanied by luxurious gifts, and extravagant trips.

The investigators found evidence that the physicians had actually performed very little to no consulting work whatsoever and had received funds from the orthopedic companies solely for the use of their products, and failed to keep accurate reports disclosing their relationship with the medical device companies to the patients that received the surgery or the hospitals where the surgeries were performed.

Biomet Orthopedics Inc., Zimmer Inc., Smith & Nephew Inc., and DePuy Orthopeadics Inc., agreed to paying $311 million in a civil settlement agreement and accepted a deferred prosecution agreement which would expire should the companies agree to an extended monitoring program and implement stringent reforms.

The appointee to the monitoring of Zimmer Inc., was John Ashcroft. Zimmer Inc., was not willing to disclose the amount that was paid to Ashcroft’s law firm. However, according to the firm’s spokesperson, the payments were around $6 to $9 million dollars a quarter.