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Patient Services, Inc. v. United States

United States District Court, E.D. Virginia, Richmond Division

January 18, 2019

UNITED STATES OF AMERICA, et al., Defendants.


          M. Hannah Lauck, United States District Judge.

         This matter comes before the Court on the Defendants'[1] Motion for Leave to Take Discovery (the "Motion"). (ECF No. 35.) Defendants request a limited discovery period to seek information on two issues: (1) whether Plaintiff Patient Services, Inc. ("Patient Services") waived its First Amendment constitutional right to engage in certain discussions with its donors, prospective donors, and their affiliates; and, (2) whether Patient Services suffered an actual harm, or injury-in-fact, from the issuance of a 2017 Advisory Opinion by the Office of the Inspector General of the Department of Health and Human Services ("HHS OIG"). Patient Services opposes the Motion to the extent Defendants seek discovery relating to the First Amendment issue,[2] (Resp. Mot. 14-15, ECF No. 37), and Defendants replied, (ECF No. 38). Accordingly, this matter is ripe for disposition.

         The Court dispenses with oral argument because the materials before it adequately present the facts and legal contentions, and argument would not aid the decisional process. The Court exercises jurisdiction pursuant to 28 U.S.C. § 1331.[3] For the reasons stated below, the Court will grant the motion, albeit on a limited basis.

         I. Factual and Procedural Background

         Each party before the Court presents itself as operating for the greater good. HHS OIG portrays itself as "an independent and objective oversight unit created to carry out the mission of preventing fraud and abuse and promoting [the] economy, efficiency, and effectiveness of HHS programs and operations." (Mem. Supp. Mot. 2, ECF No. 36.) It describes its work issuing written Advisory Opinions alongside the United States Department of Justice as "interpretation and application of certain statutory provisions designed to deter" fraudulent referral of medical goods and services to federal health care programs such as Medicare. (Id. 2.) HHS OIG seeks to assure that companies do not profit from steering products and services to federal healthcare programs when the companies' profit motivation might override best medical practices or fiscal integrity.

         At the same time, Patient Services portrays itself as "a non-profit charitable foundation that operates Patient Assistant Programs ("PAPs"), which provide financial and other assistance to indigent patients who have chronic and often life threatening diseases that require expensive treatment and management." (Compl. ¶ 4, ECF No. 1.) Patient Services highlights that its founder and President, Dr. Dana Kuhn, not only suffers personally from hemophilia, but also founded Patient Services in 1989 after years of counseling patients and families through the physical, emotional, and financial strain of managing that chronic illness. Patient Services contends that since 1989, it has "provided financial assistance to hundreds of thousands of indigent patients." (Compl. ¶ 56.)

         While the Motion pending before the Court makes a seemingly simple request-to grant a limited period of discovery-its resolution raises additional questions. Most importantly, the parties advocate for different First Amendment standards to apply: one that would allow limited discovery, and another that would not. The parties also disagree about how to supplement the Administrative Record to establish the harm necessary for Article III standing. Neither party suggests that supplementation as to harm should not occur.

         For the reasons stated below, the Court will grant a limited period of discovery, followed by additional briefing to determine what (if any) discovered information will be used to supplement the Administrative Record the Court will consider in deciding Patient Services's Complaint.

         A. Statutory and Regulatory Restrictions on How PAPs Can Operate

         An introduction of the parties and the little-known regulatory scheme that binds them must precede consideration of the Motion. Because the regulatory scheme involves several laws and regulations governing a relatively unknown business practice, the Court sets forth a more extensive overview than what it commonly would include. Indeed, the background seemingly overwhelms the Court's analysis.

         First, the Court will describe the business model for entities, such as Patient Services, operating PAPs. Second, the Court will outline the provisions of the Social Security Act that necessitate HHS OIG's Advisory Opinions. Third, the Court will introduce the role HHS OIG plays in regulating the entities operating PAPs. Finally, the Court will examine the regulatory interaction between HHS OIG and Patient Services. Only then will the Court be able to address the Motion here.

         1. The Business Model for PAPs and Patient Services in Particular

         To assist indigent patients, PAPs, such as Patient Services, rely on donations from a variety of sources, "including] pharmaceutical manufacturers, disease treatment centers, hospitals and other healthcare facilities, disease specific charities, pharmacies, individual donors, and governmental entities such as the Commonwealth of Virginia."[4] (Compl. ¶ 70.) Indigent patients seeking aid from Patient Services, for instance, must provide "their (i) medical diagnosis and the type of assistance requested; (ii) demographic and contact information; (iii) income information; and[, ] (iv) health insurance information." (Id. ¶ 60.) If approved for assistance, Patient Services may provide "assistance with health insurance premiums, travel expenses, copayment obligations, ancillary services, and infusion nursing services." (Id. ¶ 58.)

         HHS determined that PAPs presented a heightened risk of "fraud, waste, and abuse with respect to Medicare and other [f]ederal heath care programs" in part because pharmaceutical manufacturers supported, and sometimes entirely sponsored, many PAPs. See Suppl Special Advisory Bulletin: Independent Charity Patient Assistance Programs (the "2014 PAP Bulletin"), 79 Fed. Reg. 31120, 31120 (May 30, 2014). Observing this arrangement, HHS identified the possibility that PAPs might steer their charitable efforts to products their donors made or distributed. Id. HHS clarified that even PAPs such as Patient Services, who are not solely sponsored by a pharmaceutical manufacturer, might-but should not-operate as a conduit for improper payments involving federal healthcare programs, or impermissibly influence a beneficiary's drug choices. See id.

         Having made these observations, HHS recognized that this potential improper conduct implicated penalty provisions in the Social Security Act. Because the Social Security Act imposes stiff penalties for any kickback or improper influence in business dealings that affect federal healthcare programs, a discussion of these two penalty provisions will follow. Only with that background can the Court turn to how Congress, through HHS OIG, decided to offer the option of regulatory protection to PAPs via Advisory Opinions.

         2. The Social Security Act Imposes Criminal and Civil Penalties on Entities Operating Within the Federal Healthcare System That Improperly Steer Business to Donors

         PAPs who accept donations from entities such as pharmaceutical companies or doctors who might, even indirectly, suggest self-dealing must be cautious of running afoul of two provisions in the Social Security Act. First, the Social Security Act's so-called "Anti-Kickback Statute" makes it a criminal offense to knowingly and willfully solicit, receive, offer, or pay any remuneration for business reimbursable by any federal healthcare program, such as Medicare, or to induce or reward the referral or generation of business reimbursable by these healthcare programs.[5] 42 U.S.C. § 1320-7b(b).

         A second provision of the Social Security Act, 42 U.S.C. § 1320a-7a(5), (the "Civil Penalty Statute") imposes civil monetary penalties on persons or entities who offer or transfer remuneration to any medical beneficiary when that remuneration is intended to influence which treatment provider or which particular treatment a beneficiary receives under Medicare or a comparable program. Because PAPs seek donations from entities which could profit from federal healthcare programs if the beneficiary chose to use their hospital, doctor, product, procedure, or prescription and the beneficiary relied on PAP funds to pay for the hospital, doctor, product, procedure, or prescription, these laws seek to curtail incentives for PAPs to steer business toward their donors.[6] They also seek to ensure that healthcare providers make decisions about the allocation of federal healthcare services with only legitimate concerns in mind, such as quality or cost.

         These potential stiff penalties have not gone unnoticed. Congress mitigated the statutes' application to innocent behavior by devising a process through which HHS OIG could advise PAPs as to how they may operate within the law. The Court turns to the HHS OIG Advisory Opinion Process now, bringing it closer to the heart of the dispute at bar.

         3. The Role of HHS OIG in Regulating PAPs Including Patient Services

         HHS OIG seeks to minimize the risk of potential federal healthcare fraud, i.e. Medicare fraud, that could occur if PAPs, even indirectly, steer business to their donors. See 2014 PAP Bulletin at 31120 ("PAPs have long provided important safety net assistance ... [but m]any PAPs ... present a risk of fraud, waste, and abuse with respect to Medicare and other [f]ederal health care programs.") Still, Congress recognized that the Social Security Act's Anti-Kickback and Civil Penalty Statutes were broad enough to risk the imposition of criminal liability for "relatively innocuous commercial arrangements," so Congress created the Advisory Opinion process to allow PAPs to receive guidance from HHS OIG about the legality of their business structure.[7] See Medicare and State Health Care Programs: Fraud and Abuse; Issuance of Advisory Opinions by the OIG, 62 Fed. Reg. 7350; 7350 (proposed Feb. 19, 1997).

         To buffer against these potentially harsh penalties, Congress authorizes the HHS OIG, in consultation with the Attorney General, to issue Advisory Opinions when PAPs themselves seek guidance from HHS OIG on "actual or proposed factual circumstances" of their operations that may implicate the Social Security Act. 42 C.F.R. § 1008.1. When asked by a PAP, HHS OIG provides guidance about the legal parameters the PAP must operate within so as not to violate the constraints of the Social Security Act.[8] See 42 U.S.C. § 1320a-7d(b)(1); 42 C.F.R. § 1008.1, et seq.; see also Medicare and State Health Care Programs: Fraud and Abuse; Issuance of Advisory Opinions by the OIG, 62 Fed. Reg. 7350; 7351-52.

         HHS OIG's Advisory Opinion Process as to the 2017 Modified Advisory Opinion lies at the core of this case. Thus, this detailed backdrop must turn from the Social Security Act and HHS OIG to the specific Advisory Opinion and bulletins that affected Patient Services.

         4. The Regulatory Interaction Between HHS OIG and Patient Services

         To date, HHS OIG has issued two Advisory Opinions directly to Patient Services and at least two general PAP Bulletins, applicable to all entities operating PAPs.[9] Patient Services challenges the second and most recent Advisory Opinion, issued on March 3, 2017, (the "2017 Modified Advisory Opinion") as infringing on its First Amendment rights. Because the 2017 Modified Advisory Opinion flowed from information in the 2014 PAP Bulletin, the Court offers more information about both.

         a. The 2014 PAP Bulletin Discussing the Effect of Medicare Part D Implicated the 2002 Advisory Opinion HHS OIG Issued to Patient Services

         By way of background, the 2014 PAP Bulletin discussed the impact of Medicare Part D on the operation of all PAPs "based on experience [OIG had] gained in the intervening years" since 2006 when Medicare Part D had taken effect. 2014 PAP Bulletin at 31120. The 2014 PAP Bulletin identified two remunerative practices PAPs utilized that warranted increased scrutiny under the Anti-Kickback Statute. Id. at 31121. First, the 2014 PAP Bulletin identified those donations "made to a PAP to induce the PAP to recommend or arrange for the purchase of the donor's federally reimbursable items" as problematic. Id. Second, the 2014 PAP Bulletin recognized as troublesome those situations in which "a PAP's grant of financial assistance to a patient is made to influence the patient to purchase (or to induce the patient's physician to prescribe) certain items." Id. HHS recognized that this 2014 "amplifie[d]" industry-wide guidance might cause some previously-issued favorable Advisory Opinions to become inconsistent with the new guidance. Id. at 31123 ("We recognize that some charitable organizations with PAPs have received favorable [A]dvisory [O]pinions that may include features that are discouraged in" the 2014 PAP Bulletin.). HHS OIG stated that it would contact entities holding those favorable Advisory Opinions to modify them as necessary. Id. at 31123 ("We are writing to all Independent Charity PAPs that have received favorable [O]pinions to explain how we intend to work with them to ensure that approved arrangements are consistent with our guidance. We anticipate that some [O]pinions will need to be modified.").

         HHS OIG contacted Patient Services as one of the entities whose favorable Advisory Opinion, which it sought and received in 2002, might need modification. For seemingly more than two years, [10] the parties engaged in discussions to determine the scope of what would become the 2017 Modified Advisory Opinion. This back and forth resulted in the Administrative Record that will be filed in this case.[11]

         Patient Services challenges three of the certifications it made in the 2017 Modified Advisory Opinion as infringing on its First Amendment rights. The Court creeps closer to the dispute at hand: the process in which the certifications became part of the 2017 Modified Advisory Opinion.

         b. The 2017 Modified Advisory Opinion Referred to a Series of Certifications Made by Patient Services, Three of Which They Contend Violate the First Amendment

         The 2017 Modified Advisory Opinion revised HHS OIG's prior favorable 2002 Advisory Opinion while delineating exceptions, listing modifications, and referring to certifications made by Patient Services.[12] Patient Services challenges three factual certifications, listed below, (collectively, the "Three Certifications"), as contrary to First Amendment principles. Patient Services seeks declaratory and injunctive relief to preclude the HHS OIG from enforcing the Three Certifications in the 2017 Modified Advisory Opinion because they impermissibly limit Patient Services's "truthful, non-misleading, and ...

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