Health Law Advisor

• Lease arrangements – Landlords may be willing to accept a temporary reduction in rent rather than risk losing a good, long-term tenant, and otherwise reliable income stream, altogether. This can usually be accomplished by a simple amendment to the lease agreement.
• Debt covenants – Companies that have credit facilities often are subject to debt covenants in favor of the lender that are tested periodically.  Typical debt covenants that could be violated in times of financial crises include minimum financial tests, or ratios, based on a company’s income, assets, working capital, net worth and equity.  Covenants that consist of operational milestones could be impacted as well.  It’s good practice for companies to approach their lenders and seek amendments (or temporary waivers) to their covenants before those covenants are tripped, rather than afterwards, when the company is in default.

The ongoing pandemic caused by the novel coronavirus has upended the American health care system in many ways. One of the many effects of COVID-19 will likely be substantial disruption in value-based payment arrangements between health plans and providers. Though this is an issue that is not on the top of providers or payors minds as the health care system prepares to respond to the crisis, there are some simple steps that providers can take now to avoid issues in the future.

Any iteration of value-based payments (“VBP”) is likely to be disrupted by COVID-19; be it shared savings, shared risk, or full risk arrangements. Quality targets and reporting deadlines are likely to be missed as providers move many routine and preventative services to telehealth services or suspend them entirely for the time being, as well as turn the bulk of their clinical focus to COVID-19. Under some VBP arrangements, providers may be ineligible for any savings due to their inability to meet “quality gates” (i.e., certain quality metric thresholds that must be met before any savings payments are made) in the current climate. Cost savings targets are likely to be missed or at least distorted as providers focus on building out their capabilities to address the pandemic. How will these sudden and substantial changes affect the parties participating in value-based arrangements?

CMS has already announced that it will amend its quality reporting requirements from the fourth quarter of 2019 through the end of the second quarter of 2020.[1] The announcement covers a variety of quality reporting requirements and payment programs with the stated purpose of alleviating reporting requirements and disregarding unrepresentative data created during the emergency. CMS has also stated that it intends to prorate any losses incurred by Medicare accountable care organizations (“ACOs”) in 2020 for the duration of the public health emergency (e.g., if the public health emergency lasts for six months, the annual losses an ACO incurs in 2020 would be halved). Many – including a bipartisan group of Senators – have argued that this approach is insufficient to truly address the pandemic-related costs incurred by ACOs.[1] CMS has also stated that it will disregard all costs associated with care related to COVID-19 when performing benchmark calculations.[2] States may make similar changes for VBP arrangements in Medicaid programs. How these government steps would flow down into VBP agreements between managed care plans and providers is not clear and requires analysis of the specific agreements.

Imagine these scenarios:

• Your company cannot perform a contract because of the COVID-19 pandemic.
• A vendor informs you that she cannot provide your company with necessary goods because of supply chain issues caused by a governmental emergency declaration.
• A subcontractor cannot perform because its employees are self-quarantining.

These are not hypotheticals. Scenarios like these are playing out around the country. The real-world impact of the COVID-19 pandemic is colliding with contractual requirements, and there is new attention to the legal doctrines of “impossibility,” “frustration of purpose,” “impracticability, and “force majeure.”

What do they mean? In a nutshell, traditional contract law says that an unforeseeable event occurring after the contract was formed can excuse contract performance, and determining whether an event was unforeseeable will depend heavily on the specific facts and the language of the contract.

Across the nation, authorities are scrambling to meet the new challenges posed by COVID-19. The United States Centers for Disease Control and Prevention (“CDC”) has recommended that individuals remain six feet apart in order to prevent the spread of COVID-19. On March 13, 2020, the White House proclaimed a national emergency and many State governments have ordered non-essential businesses to close, and residents to self-distance. However, these emergency measures conflict with the rules for personal service of process established by Federal Rule of Civil Procedure 4.

Personal service of process is among the oldest and commonest means by which a court can obtain personal jurisdiction over a defendant. F.R.C.P. 4(e) provides that personal service of process can be accomplished by handing the process papers to the defendant personally or leaving the papers with a responsible person at the defendant’s dwelling.

In most cases, personal service involves the physical act of handing papers from one person to another. The very act of accomplishing personal service therefore violates the CDC’s recommendation that individuals remain six feet apart. However, it can also run contrary to more stringent restrictions imposed by State governments.

In response to the growing concerns of the capacity of the health care workforce as a result of the COVID-19 pandemic, on March 24, 2020 the Secretary of Health and Human Services, Alex Azar, issued a letter and associated Guidance to all Governors urging them to take immediate action.  While the federal government, and some states, have admirably waived and relaxed many rules related to the provision of various types of benefits and services, including relaxed telehealth and privacy rules/enforcement, many necessary actions are within the authority of state governments ...

On March 9, 2020, the Office of the National Coordinator for Health Information Technology (“ONC”) and the Center for Medicare and Medicaid Services (“CMS”) published their long-awaited final rules that seeks to promote interoperability. Market participants waited longer than usual for this rule due to the Department of Health and Human Services (“HHS”) extending the comment period at the request of a variety of stakeholders.

The ONC’s rule (the “Final Rule”) supports interoperability by prohibiting “information blocking”.  Affected organizations (see below) will want to be considering the impact on contracts and developing compliance policies that reflect the requirements of the Final Rule. One aspect of needed compliance relates to the Final Rule’s exceptions to information blocking including a newly-added “content and manner” exception.

Generally, information blocking is defined as an action by an actor interfering with, preventing, or materially discouraging access, exchange, or use of electronic health information[1]  (“EHI”). Actors include health care providers, health IT developers, health information exchanges, or health information network. In the proposed rule, the ONC proposed seven exceptions to conduct that might otherwise be deemed information blocking. However, in the Final Rule, ONC created eight exceptions. Further, the ONC defined two categories of exceptions: (1) Exceptions that involve not fulfilling requests to access, exchange, or use EHI and (2) Exceptions that involve procedures for fulfilling requests to access, exchange, or use EHI. Each of the eight enumerated exceptions are categorized as follows:

On March 16, 2020, FDA finalized its guidance titled Policy for Diagnostic Tests for Coronavirus Disease-2019 during the Public Health Emergency (the “Policy”). The Policy includes information and recommendations to assist laboratories and commercial manufacturers in development of diagnostic tests for the novel coronavirus (“COVID-19”) during the ongoing pandemic.

During the first week of implementation, questions arose regarding the extent to which the Emergency Use Authorization (“EUA”) pathway to market, as described by the Policy, covers at-home ...

On March 22, 2020, the U.S. Food and Drug Administration (“FDA”) issued guidance, for immediate implementation, that aims to increase the availability of ventilators and other respiratory devices needed to address the COVID-19 pandemic.  While FDA urges health care facilities to use, wherever possible, FDA-cleared standard full-featured ventilators to treat COVID-19 patients (as well as other patients requiring ventilatory support), FDA will allow a more flexible approach to modifications to these devices to help boost manufacturing capacity and supply.  FDA also took the opportunity to lay out guidelines that encourage submission of Emergency Use Authorization (“EUA”) applications for devices not marketed in the United States, continuing an unprecedented Agency response to the pandemic.

Guidance Scope

Specifically, FDA will allow manufacturers of certain FDA-cleared ventilator/respiratory devices (as detailed in the table below) to make modifications to the indications, claims, functionality, or to the hardware, software, or materials of the device without making a new 510(k) submission to FDA, so long as the modification will not create undue risk in light of the public health emergency.  Such changes, which would normally require a new 510(k), could include a significant change or modification in design, material, chemical composition, energy source, or manufacturing process.

Notwithstanding numerous restrictions limiting access to many resources during the ongoing coronavirus (COVID-19) pandemic, marijuana users in states where medicinal and adult use is legal may still have access to cannabinoid supplies. Even as states, counties, and municipalities increasingly restrict or shut down business activities to stem the spread of the virus, many jurisdictions will keep medical marijuana dispensaries open as “essential” businesses like pharmacies and grocery stores.

Medical Marijuana Dispensaries Deemed “Essential” Businesses