2020 Health Care Predictions

2020 Health Care Predictions

The Saul Ewing Arnstein & Lehr, LLP Health Care Practice includes attorneys that handle regulatory, compliance, transactional and litigation needs for clients across the entire health care delivery system, including:  academic medical centers, hospitals, ambulatory surgery centers, private practices, licensed professionals, medical associations and boards, health care entrepreneurs and payors.  Below are 2020 predictions for health care policy issues at the federal and state levels from some of our Health Care Practice colleagues.  If you are interested in further alerts on these and other health care law topics, please subscribe to our Health Care mailing list.

Privacy
Bruce Armon

The health care “reform” debate continues and will likely become a more prominent issue as part of the 2020 presidential election without any clear direction or outcome expected by pundits.  If the U.S. Supreme Court acts with respect to the enforceability of the Affordable Care Act, the ripple effects could be significant.

Multi-million dollar settlement and enforcement actions related to the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”) Privacy Rule and Security Rule will likely continue in 2020 and beyond.   Health systems, providers and even state agencies have entered into settlement agreements for alleged HIPAA violations.  See, for example, these 2019 developments:  

In addition to HIPAA enforcement activity, health care breaches will continue to attract media attention and be a significant issue for covered entities and for business associates.  The U.S. Department of Health and Human Services Office for Civil Rights (HHS OCR) reported over 30 health care breaches in December 2019 affecting more than 300,000 individuals.  Causes for the breaches included hacking, unauthorized access and theft.   Through November 2019, HHS OCR had received over 220,000 complaints relating to patient privacy.  Providers, patients, payors and entrepreneurs are or should be aware of the important privacy considerations.  HHS OCR may announce its findings/conclusions from the 2018 request for information asking for input as to how HIPAA could be modified to ensure better coordinated care among providers.

As part of its health care compliance new year’s resolutions, HIPAA-covered entities and business associates should revisit and update accordingly their HIPAA Privacy Rule policies, HIPAA Security Rule protections, and their HIPAA breach response and notification protocols.

The continued breach announcements may generate legislative energy to pass “updated” HIPAA measures (the statute was enacted in 1996 which is “eons ago” in terms of technology advances) or create incentives to amend the HIPAA regulations.  Because 2020 is an election year for many state legislatures, additional states may consider their own state-specific privacy statutes (California’s Consumer Privacy Act took effect on January 1, 2020) regardless of whether the federal government decides to pursue any initiatives.

Large (and small) technology companies continue to enter into arrangements with academic health systems and large providers to mine and analyze patient data for a multitude of uses.  It is not clear whether patients fully understand and appreciate the number of disparate parties (not all of whom are directly involved in the health care delivery system) that have access to and use patient data.  A recent story in the Wall Street Journal highlighted the collaborations between various technology companies and health care providers.

The important role of health care data, access, protection and breach consequences are ubiquitous.  It is not certain what state level or federal initiatives will be pursued and/or enacted, but the private sector will likely continue to move forward aggressively to harness patient data and use the data for a multitude of purposes.

Private-Equity Backed Practice Combinations – Is the Boom Over?
Marshall Paul, Michael Finio

2019 saw private-equity backed health-care practice groups continue to acquire smaller practices and to grow--but at what appears to be a slower pace than in the past several years.

While many physicians and other health care providers appear happy with their new affiliations, an increasing number appear to be disaffected with the large-group, employed-physician lifestyle.  Many physician clients have expressed unhappiness that their compensation has not achieved anticipated levels and that they are beginning to realize that they may never be able to turn into cash the equity interests they have acquired in the large group’s management services organization (if they, in fact, have acquired such interests).  As a result, we are seeing more and more health care professionals seek advice regarding the enforceability of their covenants not to compete and other restrictions, limitations and penalties that might be imposed if they exit the group.

In 2020, we expect to see broader challenges to such things as the enforceability of the covenants not to compete that large groups often impose on their practitioners.  These challenges likely will not just be of the ordinary variety, such as challenges to overly-broad geographic restrictions or other specific limitations imposed on the individual health care practitioner, but also challenges based on antitrust issues in general, such as the large group’s domination of a particular marketplace.  Moreover, antitrust challenges may come not just from the group’s own practitioners, but also from facilities and practices that are encountering difficulty in hiring talent because of the noncompete restrictions imposed on practitioners whom they wish to hire.

Finally, to the extent that this does not create an antitrust issue in and of itself, we expect to see more doctors working in concert to act as a counterweight to the power of the private-equity backed group of which they are a part.

Municipal Bond Financing
Joshua Pasker

2019 was a busy year for the municipal bond market as interest rates remained at historically low levels.  Market professionals are predicting that 2020 will continue to see a high volume of deals in the health care and hospital space.  Following the elimination of tax-exempt advance refundings, a component of the 2017 federal tax reform legislation, there was a significant increase in the supply of taxable municipal bonds in 2019 that should carryover to 2020 if taxable rates remain low.  In addition to new-money and refunding transactions, as consolidations and mergers become more prevalent in the health care and hospital arena, it is imperative that the due diligence process includes an in-depth review of any outstanding bond documents that may exist for the merging/consolidating entities.

While traditional municipal bond financings for health care and hospital facilities will continue to be the most active avenue for 2020 deals, there are also other vehicles available for certain types of projects including loans from the United States Department of Agriculture (USDA).  The USDA is a viable funding partner for health care and senior living providers located in certain areas of the country.  The USDA Rural Development Program is intended to be combined with other financing vehicles, such as municipal bonds, to fund hospitals, long-term care, assisted living, and other projects considered to be essential to the economic and social well-being of rural communities.  The Saul Ewing Health Care and Public Finance Groups have experience working with the USDA in conjunction with tax-exempt financing projects.

Things to Watch – Health Care and Antitrust in 2020
Michael Finio

There are no reasons to think that antitrust policy will not continue to develop aggressively in the current administration.

  • The Federal Trade Commission (FTC) will continue to insert itself into health care industry competition issues at the state level, not only in its ongoing review of provider mergers and acquisitions of all shapes and sizes, but also in more direct and immediate ways. For example, the FTC has shown a penchant in the last several years to comment on state regulatory regimes involving the licensing of health care professionals (advanced practice registered nurses, certified registered nurse anesthetists, physician assistants, dentists, dental therapists, dental hygienists, opticians, and veterinarians, to name a few). Various FTC initiatives revolve around occupational licensing reform that promotes “economic liberty” via greater portability of licenses across state lines, eliminating onerous licensing requirements, expanding scopes of service permitted in certain occupations – all to promote competition among, and ease of entry into, skilled occupations. All sources indicate that the FTC will not relent in its pursuit of protecting consumers and promoting competition through occupational licensing reform at the state level.
  • Scrutiny of pharmaceutical deals by the FTC promises to intensify given recent activities. Specifically, the FTC Chairman has said that scrutiny will back up to earlier in the approval process – by more intensive review of transactions involving overlapping products that are still in development and clinical review. The FTC is being pressured by several senators to review its willingness to “solve” pharma merger competition issues by requiring divestiture of products not yet being marketed – because those products often never make it to market, leaving the competition issues ultimately unprotected. All in all, the various issues being addressed promise to do one thing, it seems – to potentially increase the amount of time needed for FTC review.
  • While the threatened criminal prosecutions have yet to occur, the impact of the FTC/DOJ October 2016 “no-poaching” and wage-fixing guidelines is growing on the civil side, and the agencies are actively looking for cases across all industries. To the extent that there are clauses in actual agreements, or handshake deals between competing health care providers not to poach and recruit each other’s employees, health care concerns ought to be undertaking review of their positions and policies and getting ahead of that curve to avoid potential liability.
  • The FTC is likely to continue its very hard line against significant hospital mergers and other provider deals. Industry consolidation is empowering insurers to have a greater say in market definition than the previous focus on patient mobility and movement, and courts seem to be less and less inclined to lend a sympathetic ear to efficiency-enhancing arguments being advanced by the merger partners.
  • In a related move, some states are passing laws designed to erect clear barriers to successful FTC objections to provider mergers. The laws – Certificate of Public Advantage (COPA) laws – eliminate the application of federal antitrust law, and the FTC is vigorously objecting to their development, passage and application, opining that all they do is minimize the importance of competition in health care markets – which, as indicated above, is an important initiative of the FTC at the state law level.

Tax
Richard Frazier

There are a few notable tax issues that will, or may, affect tax-exempt health care providers in 2020. Among them are these:

Hooray! The much maligned provisions of the 2017 Tax Act which imposed the unrelated business income tax on certain transportation benefits (including parking) were repealed by the year-end budget legislation passed by Congress and signed by the President at the very end of 2019. As a consequence, nonprofit employers will revert to the pre-2017 Tax Act provisions, meaning that they can reinstitute their former transportation and parking policies without fear of the organizations being subjected to unrelated business income tax even though they had no income from the activity. Hooray once again.

Mayo Clinic made the news in 2019 by convincing a Federal District Court (Minnesota) that its income from real estate partnerships which are largely debt-financed is not subject to the unrelated business income tax by virtue of the Mayo Clinic being regarded as an “educational institution” within the meaning of section 170(b)(1)(A)(ii) of the Internal Revenue Code. If the decision is upheld on appeal to the 8th Circuit, it could present many opportunities for similar health care related institutions, particularly academic medical centers, to invest in real estate using similar financing techniques.

2020 should see the continuing struggle to distinguish between an “employee” and an “independent contractor.” As the trend toward outsourcing, part-time work and the mobility of the workforce intensifies, it will put additional pressure on all health care providers to properly categorize their workers and others providing services to them.

Taxes will never go away, and their applicability will always be an issue, even for those organizations that are nominally “tax-exempt.” SEA&L’s Health Care Practice will continue to provide tax guidance to help navigate these changes.

Stark Law and Anti-Kickback Statute Proposed Rules
Samantha Gross

In October 2019, the Centers for Medicare and Medicaid Services (CMS) and Office of Inspector General (OIG) of the U.S. Department of Health and Human Services (HHS), published two rules that seek to implement changes to the Self-Referral Law (commonly known as the Stark Law) and the Anti-Kickback Statute (AKS), each discussed below.

Stark Law:  The Stark Law prohibits a physician from making referrals for certain designated health services payable by Medicare to an entity with which the physician or the physician’s immediate family member has a financial relationship, unless an exception applies.   Financial relationship is defined broadly and includes ownership, investment, and compensation arrangements.  The Stark Law also prohibits that entity from presenting or causing to be presented claims to Medicare for those referred services.

The proposed regulations create six new exceptions to the Stark Law, three of which are related to value-based arrangements.  The proposed rules include supplementary guidance and clarification with respect to critical Stark defined terms and requirements, including the definitions for commercial reasonableness, the volume or value standard, and fair market value.  
Anti-Kickback Statute:  The AKS makes it a crime to knowingly and willfully offer, pay, solicit or receive remuneration to induce or reward business reimbursable under Medicare, Medicaid, and other federal health care programs.  The OIG created AKS Safe Harbors that protect certain arrangements from prosecution if each of the elements of the Safe Harbor is satisfied.  Because the scope of the AKS is broad, and the penalties for non-compliance are significant, structuring an arrangement that fits within a Safe Harbor is the preferred means for any commercial arrangement to ensure AKS compliance.  An arrangement that does not satisfy all of the elements of an AKS Safe Harbor is not necessarily illegal.  The OIG is proposing the following new AKS safe harbors:

  • Three new safe harbors related to remuneration exchanged between participants in value-based arrangements that foster better coordinated and managed patient care;
  • A safe harbor for tools and support provided to patients to improve quality, health outcomes and efficiency;
  • A safe harbor for remuneration provided in connection with CMS-sponsored models; and
  • A new safe harbor related to cybersecurity technology and services.

In addition, OIG proposes to modify existing safe harbors, including providing protections for certain cybersecurity technology and revising the definition of “warranty” under the warranty safe harbor.

Next Steps:  Public comments to the proposed changes were due on December 31, 2019.  CMS and the OIG will review the submitted comments and may amend the proposed rules in response to the feedback they receive.  Final rules are anticipated in 2020 and will likely have far-reaching effects on the health care industry.

Updated Joint FERPA and HIPAA Guidance
Samantha Gross

On December 19, 2019, the U.S. Department of Education and the Office for Civil Rights at the U.S. Department of Health and Human Services released updated joint guidance addressing the application of the Family Educational Rights and Privacy Act (FERPA) and the Health Insurance Portability and Accountability Act of 1996 (HIPAA) Privacy Rule to student education and health records.

First issued in November 2008, the joint guidance clarifies how HIPAA and FERPA apply to educational institutions, school administrators, health care providers, family members and others when it comes to student health records.  The joint guidance provides background on FERPA and HIPAA and analyzes how the two laws intersect.
Among other topics, the joint guidance addresses the following:

  • Health care providers employed by an educational organization and how related records are subject to HIPAA and FERPA privacy standards;
  • Disclosure of mental health or substance use disorder protected health information (PHI) of a minor from a covered entity to the minor’s parents;
  • Disclosure of personally identifiable information (PII) from a student’s education records to a third-party health care provider;
  • University student health clinics and how those records are treated differently from records held by university-affiliated hospitals; and
  • Emergencies, including whether an educational organization can disclose PII to law enforcement officials or the National Instant Criminal Background Check System and when PHI or PII can be shared about a student who presents a danger to themselves or others.

Health care providers and educational organizations should be aware of the topics included in this guidance and note the applicability of these laws to the records they maintain.

Cannabis: Rapid Growth Continues
Lauren Farruggia, Adam Fayne and Jonathan Havens

There are several tax issues that are likely to affect the health care industry:

The U.S. has seen enormous expansion in state cannabis programs over the past few years, and 2019 was no exception.  This year, the number of states authorizing medical cannabis stood firmly at 33 (and the District of Columbia), but one additional state, Illinois, added an adult-use (i.e., recreational use) cannabis program in May, bringing that total up to 11 states.  Adult-use sales in Illinois began January 1, 2020 despite an unsuccessful last-ditch effort to delay the program by six months.  Hawaii, New Mexico and North Dakota also passed legislation this year limiting financial penalties available for marijuana possession (and, in New Mexico’s case, eliminating potential jail time).

With public support of cannabis at an all-time high (two-thirds of Americans support legalizing cannabis, according to a September 2019 Pew Research Center survey; support for medical-only legalization is even higher, with some estimates in the 80-90% range), we expect to see even more states authorizing both medical and adult-use cannabis programs in 2020.  Just recently, a measure to legalize medical marijuana qualified for 2020 ballot inclusion in South Dakota.  And although it is not yet on the 2020 ballot, Mississippi seems poised to add a medical cannabis question on its ballot next year.  If the measure moves forward, as expected, it would be yet another example of why anyone who assumes that a state’s traditionally conservative political leanings extend to cannabis policy does so at their own peril.  Rounding out the ballot initiative measures, New Jersey residents can expect to see a “personal use cannabis” ballot measure next November.  Other states are contemplating legislative and ballot measures addressing medical and adult-use cannabis in 2020, as well, including Virginia, New York, Oklahoma and Missouri.

In addition to state cannabis program expansion in 2019, 2020 will also see growth in the hemp and hemp-derived products spaces.  Congress passed the Agriculture Improvement Act of 2018 (the Farm Bill) in late December 2019.  As outlined in an earlier blog post, the Farm Bill removed hemp from the definition of “marihuana” (marijuana) in the Controlled Substances Act (CSA), thus removing it from Schedule I.  While hemp production has indeed exploded over the past year, there are still crucial restrictions on what can be done with hemp and hemp derivatives (e.g., hemp-derived cannabidiol (CBD)).  As previously noted, the Farm Bill retained U.S. Food and Drug Administration (FDA) authority to regulate products containing cannabis or cannabis-derived products, including CBD and delta-9 tetrahydrocannabinol (THC) (e.g., foods, dietary supplements, and cosmetics).   The FDA continues to take the positions that: (1) it is a prohibited act under Section 301(ll) of the Federal Food, Drug, and Cosmetic Act (FD&C Act) to introduce into interstate commerce a food to which CBD has been added; and (2) CBD products are excluded from the dietary supplement definition under sections 201(ff)(3)(B)(i) and (ii) of the FD&C Act. FDA’s position is based on the fact that CBD and THC are active ingredients in FDA-approved drugs and were the subject of substantial clinical investigations before they were marketed as foods or dietary supplements.

After FDA’s May 31, 2019 public hearing on products containing cannabis and cannabis-derived compounds,  many expected to see a more concrete regulatory framework out of FDA before the end of the year.  In November, as it has done in the past, FDA issued 15 new Warning Letters to online CBD retailers for illegally selling products containing CBD, focusing on aggressive therapeutic claims (and, for the first time, also addressing general therapeutic claims made in conjunction with more aggressive claims).  At the same time, FDA published a revised Consumer Update, in which it detailed specific safety concerns and questions about CBD products, notably unveiling its recent conclusion that CBD cannot generally be recognized as safe (GRAS) among qualified experts for its use in human or animal food.  Absent these conclusions, FDA did little to refine its regulatory treatment of CBD in 2019.

This may (or may not) change in 2020, however.  The latest Further Consolidated Appropriations Act, 2020 (Omnibus), which President Trump signed into law on December 20th, contains language that includes $2,000,000 for research, policy evaluation, market surveillance, issuance of an enforcement discretion policy, and appropriate regulatory activities with respect to CBD products under FDA’s jurisdiction.  The Omnibus also specifies that within 60 days of enactment, FDA must provide Congress with a report regarding FDA’s progress toward obtaining and analyzing data to help determine an enforcement discretion policy and the process in which CBD meeting the definition of hemp will be evaluated for use in products.  Finally, in the Omnibus, Congress directs FDA to, within 180 days of enactment, perform a sampling study of the current CBD marketplace to determine the extent to which CBD products are mislabeled or adulterated and provide a report to Congress.

It remains unclear whether this Congressional nudge will motivate FDA to increase the pace in refining a CBD regulatory strategy:  FDA could easily tell Congress at the 60-day mark that it has not made substantial progress on this front.  This language is a greatly watered-down version of language that Senate Majority Leader Mitch McConnell had proposed to a report to the standalone Agriculture Appropriations Bill that would have forced FDA to, within 120 days of bill signing, issue a policy of enforcement discretion with regard to certain products containing CBD meeting the definition of hemp.

Although some in Congress are optimistic that the Omnibus language will be a boon for the hemp and CBD industries, others are now pursuing a more direct legislative fix.  On January 13, 2020, Rep. Collin Peterson (D-Minn.), Chair of the House Agriculture Committee, along with co-sponsors Rep. Chellie Pingree (D-Maine), Rep. James Comer (R-Ky.), and Rep. Thomas Massie (R-Ky.), introduced H.R. 5587,  which would amend the FD&C Act to: (1) allow a dietary supplement containing CBD to meet the Act’s definition of “dietary supplement;” (2) except from the FD&C Act’s prohibited acts the introduction of a food to which CBD was added into interstate commerce.  The bill would also direct USDA to complete a study on the market and regulatory barriers for farmers to participate in the agency’s domestic hemp production program.  On the one hand, the bill, if passed by both the House and the Senate and signed into law, would create some much needed certainty in the CBD space (e.g., investors would be far less skittish knowing that FDA could not take enforcement action just because a firm is selling a CBD supplement).  Moreover, it would likely cause many states to rethink their positions on CBD, as most jurisdictions that do not allow the marketing of these products cite FDA’s prohibition of them as the grounds for the state-based restrictions.  On the other hand, countless CBD firms are already marketing ingestible products without issue, at least from FDA’s perspective, as long as they are not making aggressive therapeutic claims (as discussed above).  The proposed legislation would do nothing to allow for expanded claims about CBD products.  It is too early to tell whether this bill will move.

At any rate, CBD remains a topic of great interest to stakeholders and the public, and we expect to see more federal and state legislative and regulatory action in 2020.

We encourage those interested in staying abreast of the developments in the cannabis law space to subscribe to our Regulatory Roundup blog, sign up for our Cannabis Law e-mail list, and connect with our practice leadership on LinkedIn and Twitter.

Saul Ewing Arnstein & Lehr’s lawyers are available to assist with any questions you may have regarding the many predicted health care industry developments. For questions about how our “2020 vision” – pun intended – affects your company or institution, please reach out to the authors of this article.

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