Kaiser v. Pfizer and the Question of Who Pays When Fraudulent Pharmaceutical Promotion Has Its Intended Effect
Filed under: Drugs & Medical Devices, Insurance Companies, Liability
Cross-Posted at Bill of Health
On April 3, 2013, the First Circuit issued decisions in three cases in which third-party payers sought compensation from Pfizer for damages sustained as a result of fraudulent pharmaceutical promotion. The decisions were noteworthy because in them the First Circuit lent its imprimatur to a causal chain of injury running from a pharmaceutical company’s fraudulent promotion, through the prescribing decisions of thousands of individual physicians, to the prescriptions for which a third-party payer paid. In the lead case, brought by Kaiser Foundation Health Plan and Kaiser Foundation Hospitals, the appellate court upheld a jury verdict that, after trebling, came to $142 million.
Not surprisingly, Pfizer has petitioned for certiorari, arguing that the First Circuit’s decisions “warrant review because they…raise important and recurring questions concerning the proper test for proximate cause under RICO and the permissibility of aggregate statistical proof in collective fraud cases.” Amici briefs filed by BIO, PhRMA, and the Washington Legal Foundation echo these arguments, leaning heavily on the spectre of a “staggering” increase in suits founded on “pharmaceutical companies’ alleged off-label promotion.” In addition to the financial burden posed by the “likely surge”, amici argue that it would chill their “truthful and constitutionally protected speech concerning beneficial off-label uses of FDA-approved drugs.”
Civil RICO claims cannot be predicated on “off-label promotion”, however. To state a claim, a plaintiff has to allege that the defendant pharmaceutical company engaged in one of the predicate acts enumerated in the RICO statute, typically mail or wire fraud. In this case, the jury found that Pfizer promoted the anti-seizure drug Neurontin as a safe and effective treatment for indications for which Pfizer knew it was no more effective than a placebo. On appeal, Pfizer did not contest the jury’s finding that it committed fraud. This distinguishes this case from those decided by other circuits and suggests that the First Circuit’s decisions may not open the floodgates quite as wide as Pfizer and its amici claim.
There is also reason to question the claim that the First Circuit adopted a new, more “relaxed” standard of causation in the case.The court did hold that the jury’s finding of but-for causation was supported by a report prepared by Harvard professor Meredith Rosenthal in which she used a regression analysis to link patterns in promotional spending to patterns in Neurontin prescribing. But, as the court wrote, “regression analysis is a well recognized and scientifically valid approach to understanding statistical data, and courts have long permitted parties to use statistical data to establish causal relationships.” With regard to proximate causation, the First Circuit applied the less-than-relaxed “direct relationship” test set forth by the Supreme Court. It just happened to be of the view that there was a sufficiently direct relationship between “Pfizer’s fraudulent marketing plan, meant to increase its revenues and profits” and the “payments for the additional Neurontin prescriptions [that the plan] induced.”
The plaintiffs’ responses to Pfizer’s petition for certiorari are due on November 4th. It will be interesting to see which arguments they make, and which they choose not to make, in their effort to encourage the Supreme Court to take a pass.
Filed under: Accountable Care Organization, Antitrust, Cost Control, Health Reform, Insurance Companies
Theresa Brown’s op-ed in the New York Times on Sunday, title “Out of Network, Out of Luck,” raised concerns about patients’ access to physicians within a restricted provider network. Brown describes the market in Pittsburgh, where two large hospital systems, each with an allied health plan, are battling for market share, leaving some patients with a painful choice: leave their treating physician, sometimes during a course of care, or pay higher out-of-network fees. Brown notes that the hospital systems’ integration with payers, and their aggressive swallowing up of physician practices, are steps taken in furtherance of the goals of cost containment and quality improvement.
The piece highlights the growing problem of network adequacy in health plans. The Affordable Care Act’s goal is expanded coverage, but it encourages some mechanisms to restrain cost. For example, health insurance exchanges’ lower-than-expected premiums resulted in part from insurance plans’ restrictive provider networks. The business proposition for narrow networks has been clear for decades, as plans can offer providers patient volume in return for price concessions. This dynamic is complicated, as Professor Tim Greaney has described, near-monopsony power of insurers in some states, and hospital system mergers undertaken in reaction to insurer power, but which can also have anti-competitive effect.
As the Pittsburgh situation demonstrates, powerful hospital systems and insurance plans will duke it out for market power, but may also combine in new, hybrid organizations. As the battleground moves from fee-for-service to more sophisticated reimbursement tools such as global payments, the elbows will get sharper, and the competition that remains will likely narrow patient choices even further. Massachusetts, the precursor in so much that is cutting edge in health policy, is showing the way. As Mechanic, Altman, and McDonough described last year, substantial pressure from plan sponsors and government have led provider systems to cooperate in programs that narrow patient choice, in the interest of restraining cost.
Is this a bad thing? Read more
Health experts and non-experts alike agree that the U.S. healthcare system is in need of significant reforms. Yearly increases in health insurance premiums are particularly vexing. To relieve some of the pressure, President Barack Obama promised significant reforms when he signed the Affordable Care Act (“ACA”) into law –- arguably the biggest healthcare overhaul in U.S. healthcare history since the passage of Medicare and Medicaid in 1965.
One of the key additions to the ACA is section 2718 of the Public Health Service Act, which requires health insurance issuers offering individual or group coverage to submit annual reports to the Secretary of Health and Human Services on the percentages of premiums that the issuer spends on reimbursement for clinical services and activities that improve healthcare quality and to provide rebates to enrollees when the issuers fail to meet the given year’s minimum requirements.
Under the direction of section 2718, the National Association of Insurance Commissioners (“NAIC”) developed uniform definitions and standardized calculating methodologies, which the HSS fully adopted, for requiring issuers to spend at least 80-85% of their premiums on actual medical care, with the remaining 15-20% going towards administrative costs, marketing, and other non-health care-related expenses. The NAIC defined these activities as the Medical Loss Ratio (“MLR”), also known as the 80/20 rule.
In response to consumer advocates’ concerns the final rule implementing the MLR standards, was revised to establish a mandatory onetime simple MLR informational notice requirement for issuers in the group and individual markets that meet or exceed the applicable MLR standard. The purpose of the notice was to inform the current subscribers of the new regulation. These onetime MLR informational notices are different from MLR rebate notices, which have to be send every time the issuer fails to comply with the 80-85% requirement The final MLR regulation entered finally into effect on June 15, 2012.
This new MLR rule reflects the ACA’s main goal to ensure that “hardworking, middle class families […] get the security they deserve” and that every American is protected from the “worst insurance company abuses.” Essentially, the MLR is intended to help ensure that all of us receive value for our premium dollars by requiring health insurance companies to spend at least 80-85% on healthcare and activities that improve the quality of healthcare (“QIA”). However, if the issuers spend less than the required minimum of 80-85%, they will have to return the portion of the premium revenue in excess of the limit as a rebate.
The new amendment requires all issuers, independent of whether they complied with the 80-85% MLR rule to notify their subscribers of this new regulation, which is an important step towards reinforcing consumer protection. However, as I argue in this post even the improved notice rule falls somewhat short of addressing all of the consumer advocates’ concerns.
In the global scheme of the current MLR regulation, consumer advocates are satisfied with the added notice requirements. However, they demand that the Department of Human Health and Services (“HHS”) strengthens the notice requirement, removes ambiguities and takes a step further by requiring health insurance companies to disclose how much they have spent on healthcare and quality of care in their current and previous year.
Consumer advocates believe that these improvements will increase health plan transparency, reduce consumer confusion, and ensure that all consumers receive information about how their premiums are spend. However, there is some criticism from health insurance companies about the added notice requirement. They claim that, in addition to the added cost of preparing and sending out notices, providing consumers with more information will only lead to more confusion as to how the 80-85% MLR is calculated. They reason that because the MLR has many value enhancing services that, according to the issuers, are not captured by the MLR formula, but nevertheless benefit all of us, we as consumers will draw mistaken inferences about insurer’s spending. Essentially, keeping us in the dark about how insurance companies spend OUR premium dollars, as was the case in the past, will only benefit us – along the lines “I know what’s best for you, so the less you the know/care the happier you’ll be.”
In an attempt to meet the demands of consumer and health insurance advocacy groups, the HHS adopted a balanced approach seeking to minimize the cost of additional notice requirement to the issuers while protecting the interests of consumers. Essentially, the HHS determined that while failing to require MLR information notices from issuers would result in reduced transparency, any greater notice requirements, like those demanded by the consumer advocates, would impose a greater burden on the issuers than is necessary. As such, the HHS decided to merely impose a simple onetime notice that only provides standard limited information about the MLR rule. However, the HHS misses the mark.
First, the MLR notices are intended to simply inform consumers of the existence of the new law. The fact that they were required to be sent only this year, raises the question of whether the notices will reach every subscriber as intended. Also, even assuming that they do reach every subscriber, the problem with the onetime notice is that all future subscribers will be out of luck and thus remain ignorant. However, Issuers that owe rebates will still be required to send out rebate notifications. There is an interesting notion in the regulation where the HHS explicitly “allows” issuers to voluntarily send out MLR notices. But, relying on issuers’ willingness to volunteer additional disclosure is not only impractical, but can be counterproductive because sending out random notices will only increase confusion and irritation among consumers. The ongoing annual MLR notices, on the other hand, will establish a ubiquitous presence, which is essential in creation of new expectations among consumers. Knowing where and how the premiums are spend, will likely reduce consumers’ resentment and disappointment with the relentless annual health insurance cost increases.
Second, the general information about the MLR rule and the actual MLR percentages is available on the HHS website and must be referenced in the MLR informational notices. Thus, the issuers’ fear that providing such detailed MLR information to the consumers in the notices will be too burdensome and counterproductive, is unjustified. Rather, by requiring the issuers to provide more information in the actual MLR notices, the HHS would only ease consumers’ access to such information and enable consumers to evaluate their issuer’s performance on the spot. Likewise, issuers contention that consumers might misinterpret the MLR information because the MLR formula is too complex and contains value enhancing services that according to the issuers, are not captured in the MLR formula, is unpersuasive because the NAIC and the HHS have already determined that MLR is a reliable measure of issuers’ performance in terms of their healthcare and quality of care versus administrative spending. Accordingly, the HHS should require issuers to include more information about the MLR in general, and demand that issuers’ provide their current and past year’s MLRs.
Finally, issuers argue vehemently that the mandatory notice requirement is too costly and imposes a great burden on the issuers. There appears little support for that. The HHS has already determined that the benefits to consumers will outweigh the administrative costs incurred by insurers through the issuance of notices to the policyholders. In particular, according to the HHS estimates, the total administrative cost for preparing and mailing notices to issuers that meet or exceed the MLR target would merely amount to approximately three million dollars, an average cost of $9,000 to 10,000 per issuer for the 2011 reporting year, translating to an average added cost of $0.16 per enrollee for preparing and sending a notice by mail, including labor and supply costs. Importantly, the estimates are for the first time notices only. By requiring frequent annual notices, the cost of such notices can be reduced even further as the notices become more automated. This only supports the recommendation that the HHS should require annual notices.
With these important amendments to the final rule the HHS can expect to achieve greater transparency and more accountability regarding how the issuers use their premium revenue, which is the main purpose of the ACA.
The HHS has promulgated an important consumer empowering regulation, but there is still a lot of work to be done. Consumers deserve to know how their premium dollars are spent and demand that the bulk of their premium dollars is primarily spent on health care. The MLR rules help move us toward that goal.
Ina Ilin-Schneider is a fourth year part-time student at Seton Hall University School of Law. She graduated summa cum laude from Hunter College in 2008 with a B.A. in Psychology and a minor in Economics. While an undergraduate, Ina worked as a teaching assistant in the “Statistical Methods in Psychology” class and as a research intern at the Memorial Sloan-Kettering Cancer Center performing analysis on prevalence of alcohol abuse in the gay community. During her second year of law school, Ina served as a Judicial Intern to the Magistrate Judge, the Honorable Mark Falk, providing assistance in legal research and drafting memoranda on legal questions. Ina intends to practice compliance law after she graduates in May of 2013.
Filed under: Hospital Finances, Insurance Companies, Transparency
Can a market work when buyers are kept in the dark about the prices they’ll pay? That’s an increasingly urgent question for fans of consumer directed health care. In vogue during the administration of Bush fils, CDHC is reemerging as Obamacare’s opponents seek a standard to rally around (other than “laissez mourir“). In theory, consumers could force doctors and hospitals to compete by shopping around for services. But when the rubber hits the road, informed consumption is easier said than done, as Josh Barro describes:
Recently, my employer switched to a high-deductible health insurance plan, which means I’m paying at the margin for most of my health care. As a result, I have become more aware of the true cost of the care I receive—and more aware of how difficult it is to figure out that cost. . . . if you ask doctors how much a service costs, they tend not to know. I once had an argument with my doctor, who did not want to give me a blood test for fear that my insurer would deny the claim for the expensive test. I later found out that this test costs all of $9.48 at my insurer’s negotiated rates, despite a list price of $169. When I got orthotics, my podiatrist told me they would cost nearly $600. But that was the list price; the actual insured price was less than $250. . . .
It doesn’t have to be this way. We could legally obligate hospitals and medical practices to disclose their full price lists—both the inflated list prices and the rates negotiated with each insurer that the practice accepts.
A commenter on Barro’s blog retorts:
I’m a little surprised to see a blogger at the [National Review Online] suggest that the government “require” price disclosure from private market participants. This goes well beyond the market interference that some other odious “mandates” require. Why don’t we mandate that everyone disclose exactly what they pay each employee? . . . If you have an HSA or High-deductible policy, I would suggest it’s incumbent on the insurance provider to help you figure it out. If consumers want it enough the system should respond, right? Why not switch to an HDP that is more transparent?
The problem, of course, is that lots of parties have to agree to provide transparency, and there is a great deal of inertia. If all the other insurers aren’t transparent, there’s little reason for one of them to try to distinguish itself if it already has a steady customer base. And when it stirs itself to do so, it will find a wall of resistance from providers, who say “why should we give all this information to you—no one else is demanding it?” (Moreover, the “prices” don’t really exist except on paper on a “chargemaster,” and they’re practically meaningless (except as opportunities to gouge the unlucky). The real price is the negotiated price, and that’s generated out of iterative interactions.) Moreover, many interventions involve multiple providers, as a reader of Andrew Sullivan’s blog explains:
Filed under: Health Care Plans, Health Law, Health Reform, Insurance Companies, Taxation
It was the intent of Congress in enacting the Patient Protection and Affordable Care Act to regulate health insurance comprehensively. Most of the regulatory provisions of Title I (the insurance reforms) apply to “A group health plan and a health insurance issuer offering group or individual health insurance coverage.” The definitions of these terms are drawn from the definitional section of the Public Health Services Act (added by the Health Insurance Portability and Accountability Act), which defines a “group health plan” as an ERISA plan, and a “health insurance issuer” as “an insurance company, insurance service, or insurance organization (including a health maintenance organization, as defined in paragraph (3)) which is licensed to engage in the business of insurance in a State and which is subject to State law which regulates insurance.” 42 U.S.C. § 300gg-91(a)(1), (b)(2). Thus the ACA covers both self-insured ERISA plans and insured individual and group plans.
In fact, however, the ACA does not apply to all health insurance coverage, and does not apply to all health insurance coverage to which it does apply to the same extent. HIPAA excepted benefit plans, including specific disease and fixed-dollar indemnity plans, and short term individual coverage are not subject to ACA requirements, and many of the provisions of the ACA that apply to individual and small group plans, including the essential benefit package, the risk adjustment program, and the risk pooling, community rating, minimum medical loss ratio, and unreasonable premium increase justification requirements do not apply to self-insured plans. It is, therefore, important to read the ACA section by section to determine which requirements or prohibitions apply to which types of health insurance.
One particularly important provision that has not received enough attention is section 9010, “Imposition of Annual Fee on Health Insurance Providers” (at 811-815 in the link). This provision is found in Title IX of the ACA, but was amended both by the December 2009 Managers’ Amendment, which became Title X, and by the Health Care and Education Reconciliation Act, enacted in March 2010. Section 9010 imposes a fee, beginning in 2014, on a “covered entity’s net premiums written with respect to health insurance for any United States health risk.” The fee is determined by multiplying the fraction determined by dividing the covered entity’s net premiums by the net premiums of all covered entities that are taken into account under the statute times a set annual amount, which begins at $8 billion, but rises to $14.3 billion by 2018. This fee will be an important revenue source for funding the ACA’s coverage expansions.
The fee imposed by section 9010 does not apply to all insurers equally. Insurers with annual net premiums of $50 million are fully taxed on their revenues, while insurers with annual net premiums of $25 to $50 million are taxed on only half of their net premium revenues, and insurers with net premiums below $25 million are not taxed at all. Certain tax-exempt insurers are also taxed on only half of their net premium revenues (after applying the small insurer discount just mentioned).
The fee also only applies to “covered entities.” Section 9010(c) defines “covered entity” as an entity that “provides health insurance for any United States health risk,” subject to a number of exclusions. These exclusions include “any employer to the extent that such employer self-insures its employees’ health risks;” government entities; certain non-profit insurers that derive 80% of their revenue from government programs; and VEBAs that are tax exempt under I.R.C. § 501(c)(9).What is the universe of “covered entities,” however, that remain subject to § 9010 after these exclusions are applied?
To answer this question it is necessary to parse the meaning of “health insurance” and “United States health risk.” Both terms are defined in the section, but only in part. “United States health risk” is defined to include the health risk of an individual who is a United States citizen, resident, or located in the United States. § 9010(d). “Health insurance” is defined to exclude certain but not all forms or HIPAA excepted benefits (as defined in I.R.C. § 9832(c)), long-term care insurance, and Medicare supplemental insurance. Nowhere in § 9010, or indeed anywhere in the Internal Revenue Code, however, are the terms “health insurance” or “health risk” defined. Section 9010 tells us what “health insurance” is not, but not what it is.
The most interesting question is whether health insurance for a United States health risk includes stop-loss coverage. The sale of stop-loss coverage to small employer groups is increasing very rapidly. As noted above, self-insured small groups are not subject to many of the consumer and market protections that the ACA applies to insured small groups. Self-insured group plans are also not subject to state regulation because of ERISA preemption. There is thus a great deal of interest in the part of small group plans in self-insuring. Small groups can only self-insure, however, if they can find generous stop-loss coverage that will assume most of the health risk of employees. A small employer that fully assumed coverage for its employees without stop-loss coverage would face unacceptable risk. Some insurers, therefore, are actively marketing stop-loss coverage, often with very low attachment points, to small groups.
Is this stop-loss coverage subject to section 9010? It certainly is “insurance” and it certainly covers a “health risk.” It also does not fit within any of the explicit exclusions from the term “health insurance.” But is “stop-loss insurance” “health insurance”? The term “health insurance” is nowhere defined in the Internal Revenue Code (which would be the relevant code since the fee is administered by the Secretary of the Treasury and the fee is considered to be an excise tax, see § 9010(f),(h)(1)). “Health insurance coverage” and “Health insurance issuer” are defined in § 9832, but those are not the terms used in section 9010, presumably intentionally. By analogy, the term “group health plan” is used throughout the ACA to mean an ERISA plan, but in § 1301(b) the term “health plan” is explicitly defined to not include self-insured ERISA group plans. Wherever the term “health plan” is used in the ACA without the adjective “group,” therefore, it does not include self-insured ERISA plans, but where it appears with the adjective “group” self-insured plans are included. Similarly, it must be presumed that Congress used the term “health insurance” to mean something different from the defined terms “health insurance coverage” or “health insurance issuer,” which terms are used throughout the ACA in different contexts.
Is stop-loss insurance that covers health care risks health insurance? This is certainly a reasonable interpretation of the term. Moreover, the fact that Congress explicitly excluded from the definition of “covered entity” risk borne by employers in self-insured plans, but not risk that they pass on to stop-loss insurers, indicates that Congress did not intend to exempt stop-loss plans from the fee.
Applying the fee to stop-loss coverage would help to level the playing field between conventional health insurers and health insurers that insure health risk through stop-loss plans, and might help stem the flood of small groups to self-insured status, which in turn threatens to undo the consumer protections extended to employees insured through small groups and the market protections built into the ACA to stabilize the small group market (such as the risk adjustment and risk pooling requirements).
Section 9010(c) tasks the Secretary of the Treasury with providing implementing regulations and guidance. It is to be hoped that the Secretary will clarify through the regulatory process that the § 9010 fee applies not only to conventional insurance, but also to stop-loss insurance. Stop-loss insurance increasingly serves as an alternative mechanism for covering the same health risks that are covered by conventional insurance, while at the same time providing a means of evading ACA consumer and market protections. Section 9010 should be applied to stop-loss insurance just as it is to conventional insurance.