Juvan's Health Law & Private Equity Report : Corporate & Health Care Lawyer & Attorney : Jayne Juvan : Benesch Friedlander Law Firm : Private Equity, Corporate Governance

Last week, I visited Orlando, Florida for the American Health Lawyers Association Long Term Care in the Law Conference.  This week's Health Law Recap will focus on a few themes and trends identified at the Conference. 

• Shift in Long Term Care Reimbursement.  Leslie Norwalk, the Acting Administrator for the Centers for Medicare and Medicaid Services (CMS), focused on the increased pressure on the federal government resulting from the health financing crisis.  In response, federal reimbursement for long term care will shift in favor of home health agencies and away from skilled nursing facility care.
• Employee Education About False Claims Act.  Many attorneys expressed to representatives of CMS that there continues to be substantial and noteworthy ambiguities in connection with the Deficit Reduction Act employee education requirements.  One attorney noted that the requirement applies to an entity that has less than 5 million dollars in Medicaid payments if the entity is affiliated with other entities that receive 5 million or more in such payments.  Representatives for CMS have promised that further clarification will follow shortly.
• Plaintiffs' Lawyers Use Web Sites, E-Mail Addresses to Pierce the Corporate Veil.  There has been a strong trend for parent companies who acquire nursing home facilities to form separate subsidiaries to act as holding companies and operating companies for each nursing facility acquired.  One prominent defense attorney noted that plaintiffs' lawyers have begun to cite to web sites and e-mail addresses to build a case for veil piercing.  The lawyer cautioned that employees in each separate company should have different e-mail addresses. For example, if the parent company is named "Health Care Solutions, Inc.," one subsidiary is named "Brecksville Health Care Solutions, Inc."  and the other is "Madison Health Care Solutions, Inc.," the employees at the parent and both subs should not have their e-mail address as "employeename@healthcaresolutions.com."  Instead, the following e-mail addresses would help to show that the three entities are separate legal entities:
  • Parent Company:  employeename@healthcaresolutions.com
  • Brecksville Health Care Solutions, Inc:  employeename@brecksvillehealthcare.com
  • Madison Health Care Solutions, Inc:  employeename@madisonhealthcare.com

In addition, the attorney noted that legal counsel should review a company's web site and that the web site should clearly state that each facility is owned by a separate legal entity.

• Medicaid Fraud Enforcement Is on the Rise.  Many representatives of the federal government emphasized that, in the upcoming years, the government will have increased budgets to implement Medicaid fraud controls and pursue Medicaid fraud investigations.  In the past, Medicaid has not received the same scrutiny as have other federal health care programs. 

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Last week, Clevelanders spent most of their time digging out from the Valentine's Day Blizzard.  On Wednesday, the latest snowfall count in Northeast Ohio totaled eighteen inches, and today we received another six more.  To my friends who are glad that they don't live in a snow belt, there is an upside:  the snow was so bad on Wednesday that most businesses shut down and called it a snow day (the downside--most Valentine's Day deliveries were postponed until Thursday)!  Fortunately, I'll be leaving all of the snow behind and joining some of my friends in Florida who are laughing at our misfortune when I fly out to Orlando for a conference held by the American Health Lawyers Association.

Here's a look back at a few noteworthy events of the last week:

• The Delaware Chancery Court blocked the important Caremark/CVS merger vote, at least temporarily, thereby granting additional time to Express Scripts to launch its rival bid and gain antitrust clearance.
• Parade Magazine published an article about counterfeit drugs entitled Is Your Medicine Dangerous to Your Health? The article highlights that, while only 1% of drugs in the U.S. are counterfeits, counterfeiting is growing rapidly, several Americans have died from fake drugs and counterfeiters have taken in nearly $35 billion in profits.  However, as reported by Adam Fein, a lead author and expert on the issue of fake drugs, the article falls short in citing to RFID as the miracle cure for the problems in the supply chain.
• Lawmakers introduced legislation bringing Tobacco regulation within the FDA's jurisdiction, though there's still no clear indication that the FDA can handle its current responsibilities.

Looking to the upcoming weeks, the U.S. Court of Appeals for the District of Columbia will reconsider the Abigail Alliance case on March 1.  The case addresses whether terminally ill patients have a constitutional right to obtain access to experimental medications.

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For those of you who are following closely the developments with respect to the PDMA, I wanted to alert your attention to an article by Pharmaceutical Commerce released in December that highlights developments in fifty states regarding drug pedigree requirements.  The article, entitled Red State, Blue State--and Green, Yellow and Orange Too,  provides the following fifty state summary: 

• Two states have passed legislation and approved regulations;
• Ten states are in the process of finalizing regulations;
• Five states have passed legislation but have not drafted regulations;
• Twelve states, including Ohio, have not approved such legislation; and
• Twenty-one states are at various other stages. 

As the article rightfully points out, "[f]or a pharma distributor intending to distribute to more than a few states, there's one word for the map: ugly.  The problem, basically, is that the number of variations for requirements are multiplying . . . ." 

As noted above, this article was released in December, and the current status of each state's legislation may not be accurately reflected.  Wholesalers should take care to comply with all applicable state and federal laws and regulations and to track developments closely.

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The Wall Street Journal reported today that the Delaware Chancery Court has postponed the shareholder vote on CVS Corp.'s ("CVS") takeover bid of Caremark Rx Inc. ("Caremark").  According to the article, the Chancery Court also suggested that Caremark should enter into negotiations with Express Scripts Inc. ("Express Scripts"), whose $27.3 billion dollar bid has been rejected.  At the earliest, the shareholder vote on the CVS deal will take place on March 9. 

Caremark has long rejected the competing proposal of Express Scripts on the grounds that the deal would violate antitrust laws.  Indeed, the merger of these two companies would unite two of the largest pharmacy benefit managers in the country.  Nevertheless, the judge questioned this rationale, stating that such concerns did not prevent Caremark from entering into negotiations with Express Scripts in the past.  

Responding to the move by the Chancery Court, Caremark stated in a press release,

Caremark will inform shareholders as promptly as possible regarding the new date of the special meeting to approve the CVS merger. With the tripling of the special cash dividend to $6.00 per Caremark share announced earlier today, the CVS merger now offers Caremark shareholders even greater near-term value than it did before, in addition to longer-term strategic benefits and growth opportunities. The Company looks forward to obtaining shareholder approval as soon as possible and promptly closing this merger, which has already received regulatory clearance.
     

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Last week, the FDA cleared the way for the MammaPrint test, a diagnostic test designed to predict the likelihood of breast cancer recurrence.  As a person with a family member who has battled this terrible disease, I can attest personally to the fact that breakthroughs such as this continue to bring renewed hope to survivors.  While we all debate reimbursement rates, the impending health financing crisis and the like, one thing is certainly true:  positive developments in modern medicine truly do have the ability to change lives.

In addition to FDA clearance for MammaPrint, President Bush last week proposed reducing Medicare and Medicaid spending by $101 billion over five years.  In a controversial move, Bush has proposed to require wealthier seniors to pay higher Medicare premiums.  Some have criticized Bush for failing to address a reduction in underlying costs and instead simply "just lopping off the top."

Looking forward to the week ahead, make sure to watch for news from the House Subcommittee on Oversight and Investigations hearing on FDA drug review deficiencies.  The hearing is scheduled for Tuesday.

Finally, please note that, a few weeks ago, a reader alerted me to the fact that the comment feature on Juvan's Health Law Update was not enabled.  This was a minor glitch that occurred when the blog was shifted from Typepad to Lexblog.  Please note that comments have now been enabled.  I encourage all of you to participate in commenting in the future, and I apologize to those whose comments were not timely published.

Jayne

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Breast cancer survivors were given new hope last week when the FDA cleared for marketing the MammaPrint test, a test developed by Agendia, a lab in the Netherlands, that predicts the likelihood of distant metastatic breast cancer recurrence within five to ten years.   Because cancer recurrence is partially attributable to the behavior of genes, the test profiles genetic activity and, according to the FDA, the resulting analysis positively assists doctors in making treatment decisions and formulating a plan of care for their patients.  The product has been on the market in the Netherlands for about two years. 

Data submitted by Agendia that assessed the tumors of 302 node negative early stage (stage I and II) breast cancer patients under age 61 confirmed that the test effectively predicted time to distant metastasis.  Within the next 60 days, the FDA plans to publish a special controls guidance document describing the data that supports genetic profiling claims.

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Just when you thought the PDMA pedigree requirements set forth in 21 C.F.R. section 203.50(a) had retreated into the distance, the FDA attempted to breath new life into the law when it filed a notice of appeal before the Court of Appeals for the Second Circuit last week.  While the FDA has fought back, there's no indication whatsoever from RX USA Wholesale that it intends to back down from the suit. 

If the standard cited to in Magistrate Tomlinson's Report and Recommendation is in fact correct, it appears that the FDA has an uphill battle to fight to overturn the injunction.  The Report and Recommendation, citing other Second Circuit cases, states that the decision to grant a preliminary injunction rests in the district court's sound discretion.  A decision will only be overturned if the lower court abused its discretion.  Abuse of discretion occurs if a lower court "applies the wrong legal standard, rests its decision on a clearly erroneous finding of fact, or issues an injunction containing an error of form or substance."  The FDA will have to make a strong showing on at least one of these points to overturn the grant of the injunction. 

In other news from the FDA last week, the FDA has officially responded to a report issued by the Institute of Medicine last year that launched multiple criticisms against the agency.  The FDA further announced that it would begin sharing information with the Veterans Health Administration, a measure that many perhaps thought was already occurring.

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Last week, the FDA responded to the Institute of Medicine's 2006 report entitled "The Future of Drug Safety:  Promoting and Protecting the Health of the Public."  In the FDA's press release, the FDA noted plans to increase drug safety by taking actions in support of the following (as taken directly from the press release):

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