Life Science Compliance Update

October 27, 2016

Representative Lieu Laser-Focused on Device Act, Olympus


Olympus Corp. has had its fair share of legal troubles, some of which culminated in a settlement of $646 million in early 2016. That settlement resolved anti-kickback violations and criminal charges related to the Foreign Corrupt Practices Act, and really shed a light on the lack of internal compliance efforts at the company.

Further showing the lack of internal compliance efforts, in late 2014, doctors at UCLA’s Ronald Reagan Medical Center traced deadly infections to tainted medical duodenoscopes, manufactured by Olympus. In 2013, Olympus faced deadly superbug outbreaks in other countries, including Japan, and instructed its U.S. division not to warn American hospitals about possible fatal infections from its medical scopes. Due to the lack of warning, hospital patients in Seattle; Los Angeles; Denver; Charlotte, NC; and other cities were sickened by antibiotic-resistant bacteria – superbugs – after being treated with Olympus scopes.

The United States Food and Drug Administration reviewed the scopes and found that they were hard to clean and could harbor deadly bacteria. Following that FDA warning, a handful of superbug infection lawsuits sprung up across the country. Olympus maintained that the superbug infections were a result of hospitals not adequately cleaning the devices.

In late 2015, the FDA mandated duodenoscope makers to perform safety studies on its devices and issued a safety alert, warning the public of the risk of infection, also warning manufacturers like Olympus of the violations of not reporting the infections. The FDA, however, admitted that it never approved the redesign of the scopes in question, nor did it receive sufficient proof that hospitals could properly clean the devices according to manufacturer specifications.  

In January 2016, Olympus finally recalled its medical scopes, issuing action steps for facilities that were still using the endoscopes.

In March of 2016, it came out that UCLA asked Olympus to lend them replacements. Olympus refused to do so, instead offering to sell the hospital thirty-five new scopes for $1.2 million – a 28% price increase from just a few months earlier. Olympus claimed that the previous discounts no longer applied – “supplies are already low, where demand is high with all academic institutions expanding their inventories.”

In April 2016, Congressman Ted Lieu of California filed a bill known as the Device Act, which would make it mandatory for device makers to share safety alerts more widely, including those issued abroad. The legislation would require companies to notify the FDA when they issue safety warnings in other countries related to the design and cleaning of their devices and would also require manufacturers to notify the FDA when they change the design or cleaning instructions of their devices, regardless of whether those changes warrant new government approval. Lieu noted that he planned to press lawmakers to take up the bill once they reconvened.

In July 2016, Congressman Ted Lieu of California pushed for Congress to toughen requirements on medical device warnings, calling a 2013 decision by Olympus Corp. to not issue an alert to U.S. hospitals about scope-related superbug outbreaks “despicable.”

On August 29, 2016, Rep. Lieu sent a letter to Secretary John Kerry, urging the State Department to request that Japanese authorities investigate and prosecute Olympus for civil or criminal misconduct in their mishandling of the aforementioned infections. He notes that internal emails “reveal that Olympus executives in Japan purposely told U.S. executives to not issue warnings associated with its medical scope devices, leading to antibiotic-resistant “superbug” outbreaks, infections, and deaths in hospitals all across the country.”

According to Lieu, “this is why Congress needs to act and pass legislation to make sure this doesn’t happen again as well as hold a hearing. I believe it is now time for the decision-makers at Olympus to be held accountable and for Congress to hear what they have to say.”

No action has been taken on the Device Act yet, which can be tracked here. It seems as though Rep. Lieu is laser-focused on this issue and depending on how the election season progresses, we may be able to see this bill come to the floor sometime soon.  

Like Taxes and Inflation - HHS Revises Civil Monetary Penalties Upwards


The Department of Health and Human Services has issued an Interim Final Rule, adjusting for inflation the maximum civil monetary penalty amounts for various civil monetary penalty authorities within HHS. This article elaborates on the increases, as well as what they may mean for the future of compliance.

In November 2015, President Barack Obama signed into law the Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015 (the 2015 Act) as part of the Bipartisan Budget Act of 2015. The 2015 Act amended the Federal Civil Penalties Inflation Adjustment Act of 1990 (the Inflation Adjustment Act) and attempted to improve the effectiveness of civil monetary penalties and to maintain their deterrent effect.

Read Full Article in the October 2016 Issue of Life Science Compliance Update

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October 26, 2016

CMS Bundled Payments for Care Improvement Evaluation Released


The first year of CMS' voluntary Bundled Payments for Care Improvement initiative has yielded a mixed bag of results, according to the program's 2016 evaluation report. “There have been modest reductions in Medicare episode payments for select clinical episode groups with isolated instances of quality declines and fewer instances of increased quality,” the CMS report said. Patrick Conway, MD, acting principal deputy administrator and chief medical officer for CMS, was optimistic about the results of the experience of participants through June 2015. In a blog post, he pointed to how “11 out of the 15 clinical episode groups analyzed showed potential savings to Medicare.” This is echoed in a recent JAMA study. But one researcher warns the program may have inadvertently encouraged unnecessary treatment, contrary to Medicare's goal of lowering overall spending through value-based care models.

Bundled Payments for Care Improvement initiative

Enthusiasm for bundled payments is high. Leading health policy experts recently called on CMS to expand its mandatory bundled payment initiative. The Bundled Payments for Care Improvement (BPCI) initiative is designed to test whether linking the payments for all providers involved in delivering an episode of care can reduce Medicare costs while maintaining or improving quality of care. The Centers for Medicare & Medicaid Services (CMS) launched the BPCI initiative under the authority of the Center for Medicare and Medicaid Innovation. BPCI Awardees, which can include hospitals, physician groups, post-acute care (PAC) providers and other entities, entered into agreements with CMS to be held accountable for total Medicare episode payments. Those agreements also specify Awardees’ choices among four payment models, 48 clinical episodes, three episode lengths and waiver options.

The BPCI initiative is designed to reward Awardees for adopting practices that reduce Medicare payments for the bundle of services in the episode relative to a target price that CMS determines based on the provider’s historical payments for the same type of episode. When Awardees’ episode payments are below the target price, they may receive net payment reconciliation amounts (NPRA), which they can keep or share with their partnering providers. When Awardees’ episode payments are above the target price, they may have to return amounts to CMS. Thus, Awardees have strong incentives to lower episode costs.

How Are They Performing?

A recent JAMA report is the largest study to date of the program. The major finding of the study is that while spending decreased in both the intervention and control populations, the decrease was significantly greater for health care organizations in the BPCI. For hospitals participating in the BPCI initiative, mean Medicare payments for the hospitalization and 90-day post-discharge period were $30,551 during the baseline period and decreased to $27,265 during the intervention period. In the comparison hospitals, mean episode payments were $30,057 at baseline and decreased to $27,938 during the intervention period. Payments declined $1166 more in the BPCI hospitals than in the comparison group. Almost all of the reduction in spending was from reduced use of institutional post-acute care.


The JAMA study does suffer from some limitations. First, these could be positive results from an early part of the initiative and thus an outlier. For instance, the greater changes in hospital characteristics for the BPCI participants between the baseline and intervention periods suggest that these hospitals were evolving differently than the comparison hospitals. Second, the quality measures were limited. Although the incentives to improve quality are strong given the high cost of complications, subsequent studies will need to confirm that beneficiaries are not harmed. A third concern is whether the design of the evaluation was sufficiently sensitive to behavioral changes that could make any apparent savings misleading.

Using a different method to study the model, researchers indicate that total spending actually decline less in the BPCI hospitals than in the comparison hospitals. In the BPCI hospitals, during the pre-intervention period, the mean number of total joint replacement episodes initiated per quarter per hospital was 61.5 and the mean total payment per episode was $30 551, for mean total payments per quarter per hospital of $1,878,887, whereas the comparable numbers in the intervention period were a mean of 64.6 episodes and mean payment per episode of $27,265, for mean total payments per quarter per hospital of $1,761,319, a mean difference of $117,568 per hospital, a 6.3% decrease.

It is thus too soon to tell whether the portion of the BPCI initiative focused on lower extremity joint replacement is actually improving care and achieving savings for the Medicare program. The launch of the Comprehensive Care for Joint Replacement initiative should therefore be seen as an important step forward.

PricewaterhouseCoopers (PwC) study

About 31% of hospitals have adopted a bundled payment program, and about 63% of those hospitals have achieved savings, according to a survey by PwC. Even so, BPCI’s varied results—and the mixed results of other alternative payment models such as accountable care organizations—could give healthcare providers pause. Health systems that succeeded in pocketing savings in the orthopedic and cardiovascular groups did so, in part, by discharging patients to less expensive clinicians, such as home health providers, compared to institutional post-acute providers. Hospitals that embrace bundled payments should ensure that they have identified appropriate post-acute provider partners, and have improved consumer outreach initiatives.


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