Healthcare Reform Update: Senate Passes Amended Bill with Drug/Device Rebates and Fees Largely Intact and New Fraud and Abuse Provisions

By Alan M. Kirschenbaum, Kurt R. Karst & J.P. Ellison –

On Thursday morning, the U.S. Senate passed, by a 60-39 vote, H.R. 3590, the Patient Protection and Affordable Care Act.  Last weekend, Sen. Harry Reid (D-NV) unveiled a 383-page Manager’s Amendment to the bill.  The bill retains the discount, rebate, and industry fee provisions we previously reported on, except that the device industry fee (in § 10904) has been eliminated for 2010, and the aggregate annual fee imposed on covered manufacturers or importers of medical devices sold in the U.S. is set at $2 billion for the years 2011 through 2017 and $3 billion for years after 2017.

The Manager’s Amendment also includes changes (at § 10104(j)) to the False Claims Act (“FCA”).  The FCA amendment appears intended to address recent court decisions interpreting the public disclosure and original source provisions of the FCA.  While the stated purpose of these amendments, according to a section-by-section summary of the bill, is “to ensure that whistleblowers who play a significant role in exposing fraud can be included in otherwise meritorious litigation,”  the provisions seem likely to inject further uncertainty into already complicated questions of when a public disclosure has occurred and when a relator is an original source of publicly disclosed information.

The Manager’s Amendment (at § 10606) also changes the intent requirement for health care fraud under 18 U.S.C. § 1347, such that “a person need not have actual knowledge of this section or specific intent to commit a violation of this section.”  In addition, a potentially significant change for FDA-regulated companies, is the insertion of FDC Act § 301 in the definition of “Federal health care offense” at 18 U.S.C. § 24(a).  This means that an FDA offense could be a predicate for a health care fraud case.

The bill (at § 10609) aslo includes the so-called “Generic Loophole Bill” introduced by Sen. Jeanne Shaheen (D-NH) earlier this year.  As we previously reported, the measure would permit FDA to approve a generic drug notwithstanding certain “last minute [labeling] changes” to the reference listed drug labeling that could otherwise delay ANDA approval.  Absent from the Senate bill are proposed amendments (see our previous post here) concerning authorized generics and “pay-for-delay” settlements.

The bill’s provisions on follow-on biologics do not appear to have changed.  Sen. Sherrod Brown’s (D-OH) amendment (SA 2895) that would cut the proposed 12-year exclusivity period for an innovator product short if the innovator’s product is a blockbuster drug is not included in the bill. 

A side-by-side comparison of the drug and device provisions in the House and Senate healthcare reform bills that we prepared is available here.  The Congressional Budget Office’s December 19, 2009 cost estimate of the bill is available here, and the December 20, 2009 corrected cost estimate is available here.  Additional background information on the bill is available here.