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Law360 (April 6, 2020, 5:43 PM EDT) --
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| Kevin Rinker |
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| Jacob Stahl |
The act includes a large fund for providers who are treating COVID-19 patients (including, but not limited to, hospitals), life science companies developing new vaccines, and manufacturers of products that are being used to respond to the current crisis. The act also includes regulatory reforms governing the provision of drugs and supplies needed in the current environment; health care reimbursement reforms; and — in a development unrelated to COVID-19 — a sweeping overhaul of the laws governing over-the-counter drugs.
We address these key developments below and what they mean for the impacted industries.
Provisions Impacting Health Care Providers
Many hospitals and other providers have suffered significant financial losses because many types of nonemergent procedures and visits have been cancelled due to the current public health emergency. Additionally, some of these same organizations — particularly hospitals — have expended considerable sums to prepare for or treat large numbers of COVID-19 patients. The CARES Act includes a variety of programs that are designed to assist hospitals and other providers.
The $100 Billion Fund for Providers Who Treat COVID-19 Patients
For hospitals and other provider groups that have treated — or are preparing to treat — COVID 19 patients, the Public Health and Social Services Emergency Fund may be of vital significance. It provides an appropriation of $100 billion for the U.S. Department of Health and Human Services to distribute to eligible health care providers (defined to include both for-profit and not-for-profit entities and Medicare- or Medicaid-enrolled suppliers and providers) who provide "diagnoses, testing, or care for individuals with possible or actual cases of COVID-19."
The act provides few details regarding how HHS should distribute these funds, but provides that the funds are intended to "prevent, prepare for, and respond to coronavirus, domestically or internationally, for necessary expenses … for healthcare related expenses or lost revenues that are attributable to coronavirus."
The act also includes provisions that describe a potentially narrower set of uses for these funds, including developing new facilities or retrofitting existing ones, obtaining necessary supplies and equipment, and developing surge capacity. Notably, however, this fund is unlikely to result in payments being made to physician practice groups which have suffered huge losses due to patient cancellations, but are not expending funds to treat COVID-19 patients.
Given the lack of statutory specificity, it will be up to HHS to issue guidelines — likely in the form of a guidance document — regarding how these funds are going to be spent. In the meantime, providers who are treating COVID-19 patients or are preparing for a surge of such patients should keep detailed records of their expenditures, which may be essential for seeking reimbursement.
Additional Medicare and Medicaid Expenditures
Through a variety of provisions, the act provides additional Medicare and Medicaid expenditures that will either directly fund COVID-19-related treatments or provide additional funding to government health care programs, some of which are likely to filter to providers.
The Medicare sequester will be lifted for the period starting May 1 through Dec. 31. This action forestalls until the end of the year a 2% reduction in Medicare payments to hospitals, physicians, nursing homes and home health providers. According to the Federation of American Hospitals Inc., it will result in more than $3 billion in additional funds for hospitals. Lifting the sequester will similarly result in additional funds for other providers that treat Medicare beneficiaries (e.g., physician practice groups).
For the period of the COVID-19 emergency (as determined by HHS), Medicare will pay 20% above the amount of reimbursement it would otherwise pay to providers who treat COVID-19 patients. As many COVID-19 patients over age 65 have required intensive hospital treatment, this provision could be a significant benefit to hospitals treating COVID-19 patients.
For the period of the COVID-19 emergency, the Center for Medicare and Medicaid Services is given authority to provide advance/accelerated payments to certain entities. Subsequently after the CARES Act was signed into law, CMS announced that it would provide advance/accelerated payments — based on historical data — to Medicare Part A providers (e.g., hospitals) and Part B suppliers (e.g., physician groups) who meet certain basic qualifications.
The size of the advance/accelerated payment will depend on the type of entity making the request: (1) providers and suppliers may request 100% of the Medicare payment amount for a three-month period; (2) inpatient acute care hospitals, children's hospitals and certain cancer hospitals may request 100% of the Medicare payment for a six-month period; and (3) "critical access hospitals" (i.e., certain types of rural hospitals) may seek 125% of the Medicare payment. These advance/accelerated payments may be vital to providers who are suffering a liquidity shortage as a result of the current emergency.
For the period of the COVID-19 emergency, there will be a postponement of the scheduled reductions in Medicare payments to durable medical equipment suppliers for equipment that helps patients transition from the hospital to the home (irrespective of whether or not the patient is suffering from COVID-19).
The Families First Coronavirus Response Act, which was signed into law by Trump on March 18, included a provision increasing the portion of Medicaid costs borne by the federal government by 6.2% for the period between Jan. 1 and the end of the COVID-19 emergency if certain requirements are satisfied.
The CARES Act makes technical corrections to ensure that states are not disqualified from receiving the increased funding. This added funding will be critical to states that are likely to face significantly greater demands on Medicaid budgets due to increased unemployment and COVID-19-related costs.
Funding for the National Strategic Stockpile
The act provides $16 billion in funding for the national strategic stockpile, which likely will result in purchases of personal protective equipment, ventilators and other supplies that are needed to respond to the COVID-19 crisis. Many manufacturers are already hard at work producing — or preparing to produce — these products these products.
With respect to ventilators, the same day that he signed the CARES Act, Trump invoked his authority under the Defense Production Act to require that General Motors prioritize the production of ventilators. It remains to be seen whether the Trump administration will use its Defense Production Act authority to require other manufacturers to prioritize the production of supplies that are needed for the current emergency.
Expanded Access to Telehealth
Since the start of the COVID-19 crisis, CMS has relaxed certain regulations governing the use of telehealth services to provide care remotely. The CARES Act further expands access to telehealth services as provided below:
- The act includes appropriations to federal agencies including the Veterans Administration, the U.S. Department of Defense, the Federal Communications Commission and Indian Health Services to fund various initiatives that are designed to facilitate the provision of telehealth services.
- For consumers with qualifying high-deductible health plans and accompanying health savings accounts, such plans will be permitted to cover telehealth services prior to the patient reaching the deductible (for plan years beginning before December 31, 2021). In other words, a high-deductible plan can cover telehealth services for patients who have not incurred significant medical expenses that would exceed their deductibles.
- The Coronavirus Preparedness and Response Supplemental Appropriations Act of 2020 (enacted on March 6) allowed HHS to waive certain restrictions governing telehealth, but it applied only to qualified providers who had treated the patient at issue within the prior three years. The CARES Act eliminates that qualification. Therefore, if the other relevant criteria are satisfied, Medicare will provide reimbursement to telehealth providers who are treating new patients.
In the short term, the expansion of telehealth services is beneficial to health care providers who can treat patients — and therefore receive reimbursement — who could not otherwise come for a face-to-face visit due to the risk of infection. In the longer term, as telehealth becomes more commonplace, it seems unlikely that telehealth will be significantly rolled back once this emergency ends. That trend is likely to benefit physician groups, including the concierge medicine sector, and telehealth technology providers that are able to provide telehealth services remotely.
Provisions Impacting Life Science Companies
The U.S. Food and Drug Administration is moving quickly to address the public health emergency by issuing policies to expand the availability of currently marketed products, such as personal protective equipment and hand sanitizers, and by facilitating the development of critical therapeutics and vaccines.
The FDA and industry must also anticipate and react to drug shortages fueled both by increased demand for certain therapies and reduced supply due to the pandemic. The CARES Act provides the FDA with the funding and tools to support these efforts. It also includes over-the-counter drug reform provisions that are unrelated to the current pandemic but are nonetheless expected to have far-reaching effects on the life science industry.
Drug and Device Shortages
The CARES Act includes a number of provisions aimed at preventing or mitigating shortages of lifesaving drugs and devices. In addition to creating an obligation for drug and medical device companies to notify the FDA in the event of a shortage during a public health emergency, the FDA will be able to expedite and prioritize the review of product applications and facility inspections where appropriate to mitigate or prevent shortages of lifesaving products.
Independent of the CARES Act, the FDA has taken other measures to address drug and device shortages. For example, the FDA has relaxed requirements for hand sanitizers through guidance, provided instructions to facilitate the importation of personal protective equipment and issued emergency use authorizations for COVID-19 diagnostic tests, potential treatments and ventilators.
Funding for Vaccines and Therapeutics
The CARES Act benefits the drug industry by providing $27 billion for the Public Health and Social Services Emergency Fund, intended in part to support the development of vaccines, therapeutics and diagnostics. Up to $16 billion may be used to purchase products for the Strategic National Stockpile. Another $3.5 billion will go to the Biomedical Advanced Research and Development Authority (part of HHS) to fund the manufacturing, production and purchase of vaccines, therapeutics and diagnostics.
Congress specifically allows BARDA to use the funds for construction or renovation of U.S. manufacturing facilities owned by private industry. BARDA has already granted funds for vaccine research, including a reported $420 million to Johnson & Johnson, and is also providing funding for the development of vaccines by Moderna Inc. and Sanofi-Aventis US LLC.
HHS has not yet provided specific guidance for the distribution of the new Public Health and Social Services Emergency Fund, but companies developing products to prevent, diagnose or treat COVID-19 may seek to determine their eligibility for assistance.
Delay of Drug Pricing Reform
The drug industry is expected to indirectly benefit from the extension of certain health funding legislation to November 2020. House Speaker Nancy Pelosi and Senate Finance Committee Chairman Chuck Grassley had signaled that they would use the reauthorization, originally set for May 2020, as a vehicle to work on drug pricing reform.
With the reauthorization now moved to the end of 2020, it seems unlikely that drug pricing reform will be pursued any earlier and there is a low likelihood that Congress would pass a significant reform bill during the lame-duck period after the general election in November 2020.
FDA Appropriations
The CARES Act allocates $80 million to the FDA for salaries and expenses to respond to the COVID-19 pandemic by supporting the development of necessary medical countermeasures and vaccines, advancing domestic manufacturing for medical products and monitoring medical product supply chains. Companies developing or marketing products that may be used to address the public health emergency may therefore benefit from a more responsive agency with expanded resources.
OTC Drug Reform
Although unrelated to the COVID-19 pandemic, the CARES Act includes major reforms to the FDA regulatory regime governing OTC drugs. Most OTC drugs sold in the U.S. are marketed pursuant to OTC drug monographs developed by the FDA through the OTC Drug Review. Although the OTC Drug Review started in the early 1970s, many OTC drug monographs are still not finalized.
The act creates an expedited mechanism for the FDA to update and issue monographs through an administrative order rather than the lengthy notice-and-comment rulemaking process. In addition, the act encourages innovation by granting 18 months of marketing exclusivity in certain circumstances which a company has conducted human studies and successfully petitions the FDA to modify a monograph.
The act also authorizes the FDA to collect OTC drug user fees beginning in fiscal year 2021. Many of these provisions are intended to foster innovation for OTC products, which have been subject to stagnant, outdated monograph requirements for decades. Companies seeking to innovate in the OTC space may benefit from increased regulatory flexibility and lower barriers to entry.
Kevin Rinker is a partner and Jacob Stahl is counsel at Debevoise & Plimpton LLP.
The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm, its clients or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.
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