Transcript Slide 1

Glenn Krinsky
Ropes & Gray
One Embarcadero Center
Suite 2200
San Francisco, CA 94111-3627
[email protected]
Boston
New York
San Francisco
Washington, DC
OVERVIEW
• General Contracting Issues
• Anti-Kickback Laws
• PhRMA Code
• Self-Referral (Stark Law)
• Anti-Trust
• Questions
CONTRACTS
GENERAL CONTRACT ISSUES
Term and Termination
• Considerations
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Automatic renewal vs. notice of renewal
With cause (e.g., for breach)
Without cause
Immediately
Effects of Termination
GENERAL CONTRACT ISSUES
Indemnification
• Definition
– Process whereby one party secures another party
against an anticipated loss
– The indemnified party seeks to make the indemnifying
party responsible for a third party claim.
• Considerations
– Reciprocal vs. one-sided
– To whom it applies (e.g., shareholders, members,
trustees, officers, directors, employees)
– Scope of coverage (e.g., “arising out of or relating to
[…]”)
– Standard of conduct (e.g., negligent, gross
negligence)
GENERAL CONTRACT ISSUES
Indemnification (con’t)
• Sample Provision (from a managed care contract):
Indemnification by Customer. Customer agrees to hold
harmless APCS, its directors, officers, employees and
agents from any claim, suit, cost or expense, of any kind,
including but not limited to, the cost of defense incurred by
[Supplier], as a result of any actions or omissions by
Customer in connection with its performance of the terms
and conditions of this Agreement, including, but not limited
to, (i) breach of its obligations under this Agreement, and/or
(ii) allegations, judgments, findings or determinations that
APCS is vicariously liable for such actions or omissions by
Customer, but excluding any allegations or judgment that
Customer failed to oversee APCS’ compliance with the
terms, conditions and obligations under this Agreement or
the Law.
GENERAL CONTRACT ISSUES
Limitation on Liability
• Sample Provision:
"In no event shall [drug company] be liable for any
indirect, incidental, special, consequential or
punitive damages, including loss of profit,
revenue, data or use, incurred by [physician],
whether in contract or tort."
ANTI-KICKBACK
ANTI-KICKBACK LAWS
FEDERAL LAW
• No person may knowingly and willfully offer or pay any
remuneration to induce any person:
– To refer patients for items or services reimbursable under a
Federal health care program; or
– To purchase, lease, order or arrange for any good, facility,
service or item reimbursable under a Federal health care
program.
• No person may solicit or receive any remuneration for making
referrals or for purchasing/leasing/ordering goods or services.
ANTI-KICKBACK LAWS
PENALTIES
• Applies to individuals (officers, employees,
physicians) and entities (hospital, home health
agency)
• Civil: Fines up to $25,000
• Criminal: Felony - maximum 5 years in prison
• Exclusion from Federal health care programs
• Possible False Claims Act violation: $50,000 for each
violation plus three times the kickback amount
ANTI-KICKBACK LAWS
EXAMPLES OF PROHIBITED KICKBACKS
• Payment or receipt of cash, rebates, or in-kind benefits in order
to induce referrals or the purchase/ordering of goods or
services
• Fee-splitting arrangements (e.g., paying a referring physician
an excessive fee for “interpretation” of test results)
• Offering significantly discounted office space or equipment to
physicians with admitting privileges at the hospital
• Offering free training for a physician’s office staff beyond the
training necessary to provide services at the hospital
ANTI-KICKBACK LAWS
SAFE HARBORS INCLUDE:
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Personal services and management contracts
Employment
Space rental and equipment rental
Discounts (if properly disclosed)
Ambulatory Surgical Centers
Waiver of beneficiary coinsurance/deductibles for
inpatients
• Practitioner recruitment
• Investments in Group Practices
Generally arrangements must be provided at fair
market value and may not vary based upon the
volume or value of referrals
ANTI-KICKBACK LAWS
SAFE HARBORS INCLUDE:
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Personal services and management contracts
Employment
Space rental and equipment rental
• Discounts (if properly disclosed)
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Ambulatory Surgical Centers
Waiver of beneficiary coinsurance/deductibles for inpatients
Practitioner recruitment
Investments in Group Practices
Generally arrangements must be provided at
fair market value and may not vary based
upon the volume or value of referrals
ANTI-KICKBACK LAWS
• If contract contains Discounts:
– Sell and price each item separately
– Retrospective Rebates:
• Customers must keep Medicare/Medicaid
cost reports
• Specify the terms for retroactive discounts
and amounts available; file invoice and
rebate calculations together
– Contracts should not provide discounts for
nonreimbursable items in exchange for the
purchase of an expensive reimbursable
item
ANTI-KICKBACK LAWS
CALIFORNIA ANTI-KICKBACK LAWS
• Section 650:
– The offer, delivery, receipt or acceptance by any person licensed
under this division … of any rebate, refund, commission,
reference, patronage dividend, discount, or other consideration,
whether in the form of money or otherwise, as compensation or
inducement for referring patients, clients or customers to any
person…
ANTI-KICKBACK LAWS
CALIFORNIA ANTI-KICKBACK LAWS
• Section 650.1
– Any amount payable to any hospital, …, or any person or
corporation prohibited from pharmacy ownership … under any
rental, lease, or service arrangement with respect to the
furnishing or supply of pharmaceutical services and products,
which is determined as a percentage, fraction, or portion of (1)
the charges to patients or (2) any measure of hospital or
pharmacy revenue or cost, for pharmaceuticals and
pharmaceutical services is prohibited.
ANTI-KICKBACK LAWS
POINTS TO KEEP IN MIND
• Anti-kickback law creates broad prohibition on payment or
receipt of kickbacks in exchange for referrals
• Narrow safe harbors available if detailed requirements
met
• If safe harbors are not met, not necessarily a violation
(depends on facts and circumstances)
• Federal government will issue advisory opinions
approving or rejecting a proposed arrangement between
providers
• State law regulation as well federal regulation
• Increased investigation and enforcement
• Unfavorable publicity from investigation even if no
violation
ANTI-KICKBACK LAWS
CALIFORNIA PENALTIES
• Applies to individuals (officers, employees, physicians)
and entities (hospital, home health agency)
• Civil: Fines up to $2500
• Criminal: Misdemeanor - maximum 6 months in prison
ANTI-KICKBACK LAWS
• Activities that could warrant OIG
investigation:
– Any payment, including cash or other
benefit, given to a patient or provider for
changing a prescription or recommending
or requesting such a change, from one
product to another, unless the payment is
fully consistent with a “safe harbor”
regulation, or other federal provision
governing the reporting of prescription
drug prices.
ANTI-KICKBACK LAWS
• Hypothetical: Company presents a
contract containing a provision
providing free medical supplies if
there is a 20% increase in number
prescriptions written
– PROBLEM: Any prize, gift or cash
payment, coupon or bonus offered to
physicians in exchange for, or based on,
prescribing or providing specific
prescriptions products
ANTI-KICKBACK & PhRMA CODE
“Although compliance with the PhRMA
Code will not protect a manufacturer
as a matter of law under the antikickback statute, it will substantially
reduce the risk of fraud and abuse and
help demonstrate a good faith effort to
comply with the applicable federal
health care program requirements.”
– Final OIG Compliance Guidance
PhRMA CODE
Interactions with Healthcare Professionals
• Basic Principles
– Basis of Interactions
– Independent Decision-Making
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Pharmaceutical Manufacturer Presentations
Third Party Educational Meetings
Consultants
Speaker Training Meetings
Scholarships and Educational Funds
Educational and Practice-Related Items
PhRMA
HYPOTHETICAL
• There are only two companies that make widgets
and gadgets.
– Company X makes a GREEN widget and the ONLY
gadget available.
– Company Y makes an ORANGE widget.
– The GREEN and ORANGE widgets are very similar in
quality and can be viewed as interchangeable in the
delivery of the final service.
• Company X begins to offer a contract in which
the prices of (and quantity-based rebates for)
GREEN widgets and ONLY gadgets are tied
together in one contract. Specifically, increased
purchases of GREEN widgets result in a higher
rebate for purchases of ONLY gadgets.
PhRMA
• Hypothetical might violate PhRMA
Code provision dealing with
Independence and Decision Making
– Could be construed as a practice related
item or support offered in exchange for
prescribing products
– Could be construed to interfere with the
independence of a healthcare
professional’s prescribing practices.
ANTI-KICKBACK
• Any gifts or benefits made available
in drug contracts should be
structured in accordance with the
PhRMA Code and the consultation of
an attorney
STARK
STARK LAW
GENERAL RULE
If a physician (or family member) has a financial
relationship with an entity, then:
– the physician may not make a referral for
“designated health services” reimbursable by
Medicare or Medicaid; and
– the entity may not bill for services provided pursuant
to a prohibited referral.
STARK LAW
PENALTIES
• Denial of claim, must refund any payment
• Civil monetary penalty: $15,000 per claim, possible
triple damages
• Failure to report: $10,000 per day
• Exclusion from Medicare and Medicaid programs
STARK LAW
REFERRAL MEANS
• Requesting, ordering, certifying or recertifying
need for designated health service
• Request for consultation with another physician
who orders or performs test or procedure
• Establishing a plan of care that includes
designated health service
STARK LAW
DESIGNATED HEALTH SERVICES
INCLUDE:
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Clinical laboratory services
Physical therapy services
Occupational therapy services
Speech-language pathology services
Radiology, radiation therapy services
Durable medical equipment and supplies
Parenteral and enteral nutrients, equipment and supplies
Prosthetics, orthotics and prosthetic devices and supplies
Home health services
Outpatient prescription drugs
Inpatient and outpatient hospital services
STARK LAW
EXAMPLES OF FINANCIAL INTERESTS
INCLUDE:
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Investment interest
Ownership interest
Direct compensation arrangements
Providing goods or services
– Medical direction services
– Staffing
– Use of space and supplies
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Forgiveness of debt or non-recourse loans
Any other “benefit”
STARK LAW
EXCEPTIONS TO STARK LAW INCLUDE:
• In-office ancillary services
• Rental of office space or equipment
• Employment arrangements
• Personal service arrangements
• Certain “Group Practice” arrangements
• Physician recruitment
• Medical staff incidental benefits (parking, meals,
etc)
• Compliance training (for hospital related services)
• Certain types of products/services (preventive
screening tests, immunizations and vaccines,
eyeglasses, contact lenses)
• Managed care risk sharing arrangements
STARK LAW
POINTS TO KEEP IN MIND
• Creates broad prohibition on referrals for
designated health services where financial
relationship exists
• Narrow exceptions apply if detailed
requirements met.
• Increased investigation and enforcement
in recent years
• Unfavorable publicity from investigation
even if no violation
COMPARE ANTI-KICKBACK WITH
SELF-REFERRAL
Anti-kickback
Stark/Self-referral Laws
• Knowing and willful
• No bad intent required
• No person may pay or
receive
• All items and services
• No physician may refer
• Safe harbors available
• Criminal penalties
• Designated health
services
• Must meet an
exception
• Civil penalties
STARK LAW
• Stark is not an issue with private
drug contracts
– No self-referrals involved
ANTI-TRUST
ANTITRUST
Statutes
• Sherman Act -- Section 1
– Contract, combination or conspiracy in
restraint of trade is illegal
• Sherman Act -- Section 2
– To monopolize, or attempt to monopolize,
is a felony
• Federal Trade Commission Act
– Unfair methods of competition
ANTITRUST
Statutes
• Others
– Clayton Act Section 3, Section 7
– Robinson-Patman Act (Not-for-Profit
Institution Exemption)
– Hart-Scott-Rodino Act
• State antitrust laws
STATE OF CALIFORNIA
• Cartwright Act (State Antitrust Law)
• Unfair Practices Act (prohibits price
discrimination in California as a
restraint of trade)
• Unfair Competition Act
ANTITRUST
Per se illegal conduct
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Applies to types of conduct which are inherently
anticompetitive and presumed to be illegal
No need to demonstrate market power
No defense is available
Examples
– “Naked” price-fixing
– Group boycotts
– Market divisions
ANTITRUST
Market definition
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As a practical matter, what are reasonably available substitutes?
Product market
– Likely based on specialty, e.g. primary care, cardiac,
transplant surgery
– Analysis may focus on several different physician services
markets
Geographic market
– Could vary by specialty
Very fact-intensive inquiry
ANTITRUST
Factors corroborating a venture’s
anticompetitive nature
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Statements evidencing anticompetitive purpose
Recent history of anticompetitive behavior or
collusion
Obvious anticompetitive structure w/o plausible
legitimate justification (e.g. high market shares,
exclusivity)
Absence of mechanisms with potential for
efficiencies
Collateral agreements or spillover
Antitrust and Pharmaceutical
Products
• Conduct that could potentially create
Antitrust violations:
– Monopolization
– Agreements Not to Compete
– Agreements on Price or Price-related
Terms
– Agreements to Obstruct Innovated Forms
of Health Care Delivery or Financing
– Illegal Tying and Other
Arrangements
ANTITRUST
Monopolization
• Monopolization: the willful acquisition or
maintenance of monopoly power.
• Monopoly power: the power to control
prices or exclude competition.
Monopolization requires both that the defendant
possess monopoly power and that the defendant
have willfully acquired, maintained, or exercised
that power.
ANTITRUST
Illegal Tying
• Section 3 of the Clayton Act
– unlawful for any person:
• (1) engaged in and acting in interstate or foreign
commerce,
• (2) to lease, sell, or contract to sell,
• (3) goods or commodities,
• (4) for use or consumption within the United States or
places within its jurisdiction,
• (5) on the condition that the lessee or purchaser will not
deal in the goods of a competitor of the lessor or seller,
• (6) where the effect of such an arrangement may be to
lessen competition substantially or tend to create a
monopoly in any line of commerce.
ANTITRUST
Illegal Tying (con’t)
• (1) There must be (a) a sale, (b) a lease, or (c) a
contract for sale.
• (2) The sale or lease must be of a good, ware,
merchandise, supply or other commodity.
• (3) The particular arrangement must have the
probable effect of substantially lessening
competition or tending to create a monopoly.
• (4) The adverse effects must occur ''in any line of
commerce.''
• (5) The seller or lessor must be engaged in and
acting in the course of interstate commerce.
ANTITRUST
Illegal Tying (con’t)
• The lawfulness of tying arrangements now is generally
analyzed under the rule of reason.
• In Jefferson Parish Hospital District No. 2 v. Hyde, the
Court indicated that the per se rule applies only if the seller
has market power over the tying product.
• Elements:
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(1) two separate products,
(2) the sale of one product conditioned on the sale of another,
(3) the seller's economic power over the tying product,
(4) foreclosure of a ''not insubstantial'' amount of commerce in
the market for the tied product,
– (5) an anticompetitive effect in the market for the tied product,
and
ANTITRUST
Analyze competitive effects
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Consider venture’s share and concentration in
the relevant market
Is entry timely, likely and sufficient?
Could customers defeat a price increase?
– What is the role of third-party purchasers?
– Are there sophisticated and powerful customers?
ANTITRUST
HYPOTHETICAL
• There are only two companies that make widgets
and gadgets.
– Company X makes a GREEN widget and the ONLY
gadget available.
– Company Y makes an ORANGE widget.
– The GREEN and ORANGE widgets are very similar in
quality and can be viewed as interchangeable in the
delivery of the final service.
• Company X begins to offer a contract in which
the prices of (and quantity-based rebates for)
GREEN widgets and ONLY gadgets are tied
together in one contract. Specifically, increased
purchases of GREEN widgets result in a higher
rebate for purchases of ONLY gadgets.
ANTITRUST
HYPOTHETICAL
• ISSUE: Is the contract illegal?
– Does the contract create an illegal tying
arrangement?
ANTITRUST ANALYSIS
– Two separate products: YES
– The sale of one product conditioned on the sale of
another: NOT DIRECTLY
– The seller's economic power over the tying
product: YES
– Foreclosure of a ''not insubstantial'' amount of
commerce in the market for the tied product: NO,
IF CONTRACT ONLY APPLICABLE TO ONE
BUYER UNLESS VOLUME IS SUFFICIENTLY
LARGE
– An anticompetitive effect in the market for the tied
product: NEED MORE INFORMATION
HYPOTHETICAL
Result
– Could possibly be considered “onerous
coercion”
• Company X produces the ONLY gadget.
– Could possibly be permissible
arrangement
• Contract does not require the purchase of
Green widget; just provides an incentive.