The Year Ahead in ADR Health Care

Last year saw dynamic developments in health care law; 2023 promises even more. Watch for these trends on the 2023 health care horizon:

Privacy & Data Protection

California became the most data-protective state when it enacted the California Consumer Privacy Act (CCPA) in 2018. Cal. Civ. Code Section 1798.100, et seq. It then bolstered the CCPA by amending it with the California Privacy Rights Act (CPRA) in 2020 to add more consumer privacy protections.

The CPRA established the California Privacy Protection Agency (CPPA) with the rulemaking and enforcement power to regulate the act’s implementation. The CPRA mostly took effect on Jan.1, 2023, but applies to data collected in 2022. The CPPA’s new proposed regulations widen the scope of entities subject to the act’s requirements and permit Californians to prevent a CPPA-regulated entity from disclosing their information and to opt-in or opt-out of its use. CPRA, at Section 10, 14.

California no longer stands alone. Virginia’s Consumer Data Protection Act also took effect last month, on Jan. 1; Connecticut’s law takes effect on July 1, 2023; and Utah’s Consumer Privacy Act follows on Dec, 31, 2023. 

Indeed, some query whether the health care industry should expect enactment of a comprehensive federal data privacy law, such as the American Data Privacy Protection Act. Whether it or another national law passes, health care organizations will still face a quickly changing mosaic of state privacy laws in 2023.

While all companies wrangle with data breaches, the health care industry especially faces increased arbitration over privacy disputes. The privacy laws, coupled with the Health Insurance Portability and Accountability Act of 1996, better known as HIPPA, and electronic health records regulations present a growing area of health care arbitration. Yes, payor-provider disputes will continue to dominate the health care arbitration landscape, but expect data disputes to challenge its dominance.

Drug Pricing Regulation

In 2022, the U.S. Supreme Court issued a landmark drug pricing decision. The Centers for Medicare & Medicaid Services (CMS) previously paid some hospitals less for drugs purchased with a 340B Program discount. 42 U.S.C. Section 256b. (Congress created the 340B drug discount program in 1992 to help vulnerable and uninsured patients access prescription medicines at safety-net facilities. In 2010, a policy change enabled all 340B covered entities to contract with an unlimited number of for-profit retail pharmacies. Some now argue that pharmacies have found ways to financially benefit from the 340B program, originally designed to benefit patients.)

The Court held this practice unlawful because the CMS did not first survey to establish a basis for pricing differentials by hospital class. Am. Hosp. Ass’n v. Becerra, 141 S. Ct. 2853 (2022) (available here). On remand, the district court ordered CMS to abort its payment discounts for the remainder of 2022--and now in 2023, the court will decide whether CMS must reimburse affected hospitals.

Meanwhile, 340B hospitals must carefully amend their fiscal 2022 claims within the one-year rebilling window, as Medicare Administrative Contractors—the primary operational contact between the Medicare fee-for-service program and the health care providers enrolled in the program--have provided varying, and sometimes inconsistent, guidance. 

Importantly, faulty purchase identification–using the wrong code in the post-Supreme Court world–may cause repayment inaccuracy with significant fiscal and legal consequences. 

Congress entered the drug-pricing foray when it included a variety of drug-pricing reforms as part of its 2022 Inflation Reduction Act. Pub. L. 117-169 (Aug. 16, 2022). Notably, the act empowers Medicare to negotiate drug prices beginning in 2026. 

Other key provisions go into effect this year. For example, insulin costs will cap out at $35 for Medicare beneficiaries, who now also will not share in the costs of vaccines under Part D. Manufacturers will have to pay rebates if their Part B and Part D-covered drug prices rise faster than inflation.

For their part, manufacturers have challenged agency power to regulate the 340B program. Since 2020, many drug manufacturers have restricted the shipments of 340B drugs to covered entities’ 340B contract pharmacies, resulting in significant losses for critical access and proportionate share hospitals. In response to the Health Resources and Services Administration’s Office of Pharmacy Affairs’ (OPA) warning that these restrictions violate the law, some manufacturers proactively sued the OPA challenging its authority to regulate the 340B program. 

The district courts have since split on the issue, leaving no less than three circuits poised to rule on the scope of 340B program oversight in 2023. DC Circuit: Novartis Pharm. Corp. v. Johnson, Case Nos. 21-5299 and 21-5304; Third Circuit: Sanofi v. HHS, Case Nos. 21-3167, 21-3168, 21-3379 and 31-3380, and 22-1676; Seventh Circuit: Eli Lilly and Co. v. Becerra, Case Nos. 21- 3128 and 21-3405.

So, what does all this activity mean? Expect the impact of these changes to continue the drive toward provider-owned pharmacies, a decrease in institutional service sites, an increase in self-administered drugs, and the faster development of provider-owned pharmacies, mail order, and specialty drug services in 2023.

While large policy issues play out in Congress and the appellate courts, arbitration will increasingly resolve the day-to-day disputes over pricing, consumer challenges, and breach of contract claims as the landscape of drug-pricing shifts.

ESG & Inclusion Matters

The societal and business interest in and emphasis on environmental, social, and governance (ESG) and diversity, equity, and inclusion (DEI) will continue to target the health care industry in 2023.

Currently, the sector seems besieged by inconsistent definitions, rating methodologies, and differing objectives. The health industry should watch two prominent bureaus within the HHS for guidance, increased transparency, and consistency: the Office of Climate Change and Health Equity and the Office of Environmental Justice, both focusing on the environment, health policy, and equitable health outcomes.

The CMS has already identified five specific focus areas for 2023 as part of its Framework for Health Equity policy designed to address health disparities: expanding data collection and analysis; assessing disparity causes; building capacity to reduce disparities; providing cultural and language access, and increasing access and coverage. 

The Framework provides an expansive 10-year approach to racial health equity. While the general Framework is not new, its application to all CMS programs and priorities will newly drive the health equity movement forward in 2023. 

So, what should the industry expect? First, providers may need to address new and revised accreditation requirements designed to reduce disparities. Second, health care organizations should prepare to participate in credit rating analysis of the industry and the entities that reflect ESG and DEI gains. Third, tax-exempt health care organizations will want to align their ESG and DEI indicators with their continued tax-exempt status. Fourth, executive compensation will also likely become increasingly tied to ESG and DEI objectives. Fifth, most entities will need to self-assess the recession’s impact on their ESG and DEI implementation and adjust their plans and programs accordingly.

The impact on health care arbitration will be twofold: an increased push for ESG and DEI considerations in the arbitral process and panel itself–green arbitrations and diverse arbitrators–and increased regulatory disputes over definitions, scope, implementation, and enforcement in both areas. Arbitrators should expect to see constitutional challenges in this area.

Antitrust Enforcement

The U.S. Department of Justice continues to pursue the health care sector for labor market collusion.

Despite two earlier losses, the DOJ recently won its first no-poach criminal prosecution in the health care industry. In United States v. Hee, a health care staffing company pled guilty in October 2022 to violating the Sherman Act by conspiring to refrain from recruiting and hiring competitors’ nurses and to suppress the nurses’ wages. (Bloomberg Law has details here.) This win will likely encourage the DOJ to pursue similar prosecutions. Heightened scrutiny of noncompetes continues as well, as states also have passed laws severely limiting the employers’ ability to impose post-employment restrictions on competition.

In addition to the labor market focus, the FTC will continue to robustly challenge horizontal and vertical mergers. In 2022, the FTC fought four horizontal mergers, each of which the parties later abandoned. Despite a vertical merger challenge setback, the agencies continue to scrutinize vertical integrations. Their state counterparts also have turned to smaller transactions, such as physician mergers, because they typically do not have minimum size thresholds.

Finally, the agencies have begun to rethink prior mergers. For example, the FTC issued a policy paper warning about the anticompetitive effects of state Certificates of Public Advantage legislation, which would insulate economic activity from antitrust violations, and the pharmacy benefit management industry. These retrospective studies will likely impact the FTC’s 2023 enforcement agenda.

While not directly affecting arbitration, criminal and regulatory focus on antitrust enforcement will generate commercial dispute spinoffs.  Similar dispute effects can be expected from the enforceability of noncompete agreements, consumer unfair competition attacks, and possibly provider challenges to payor monopoly pricing structures.

Surprises in the ‘No Surprises’ Act

The No Surprises Act banned surprise billing and limited patient out-of-pocket costs, effective January 2022. Now just over a year into its implementation, the biggest surprise turns out to be its sheer use.

Expected to settle patient medical bill disputes through baseball-style arbitration–the arbitrator picks the amount from the parties’ offers–providers have been using the process much more than the federal government originally expected.

Insurance industry surveys indicate that more than nine million health care claims went through the process so far. (The Blue Cross Blue Shield Association and health care organizations’ trade association AHIP conducted the survey based upon the first three quarters of the statute’s implementation.) Originally, the government anticipated about 17,000 disputes. The survey revealed that the number turned out to be 90,000.

The survey thus surprisingly showed, among other outcomes, that disputes initiated by providers and facilities far exceeded initial prediction, causing some to speculate whether providers and facilities can use the system to their financial benefit. In fact, providers have successfully used the batching process to send many claims to arbitration in a single dispute. Thus, the 90,000 disputes represent about 275,000 claims.

Even though the arbitration remains about payment, many arbitrations under the act end up turning on the claim’s eligibility for the program–another surprise. The biggest eligibility issues involve state versus federal jurisdiction, correct bundling, completion of the negotiation prerequisite, and timeline compliance. Hence, many arbitrators end up not ruling on the payment merits but on the threshold issue of eligibility itself.  

Meanwhile, stakeholders continue to battle in the courts on how best to implement the statute. The legal challenges center on the formula and criteria the arbitrator must use to decide the payment disputes.

The Texas Medical Association (TMA) has filed three lawsuits, all focusing on the use of the qualifying payment amount (QPA) and how health plans calculate it. The TMA argues that overemphasis on the QPA artificially drives down the price for services.

Indeed, since arbitrators must choose between the parties’ two price points, and cannot pick a middle ground, insurers typically present the QPA as their payment offer. While the courts continue to address the overall system structure and the fairness of payment determination, expect the number of arbitrations under the No Surprises Act to increase strongly in 2023.

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These areas represent just a handful of 2023’s predicted trends for the health care industry. Many more issues merit a watchful eye, such as: the long-term consequences of the Dobbs v. Jackson Women's Health Organization decision (No. 19–1392, June 24, 2022) (available at bit.ly/3Y7hsVg), including private sector impacts; tweaks to telehealth considering HIPPA nuances after the pandemic’s height; DOJ pursuit of fraud and abuse in the health care industry, particularly under the False Claims Act and anti-kickback law; increased attention on cybersecurity of electronic health records; significant long-term care reforms, including minimum nursing home staff requirements; and a major push to continue medical research gains by lessening requirements for cooperative research and increasing government investment.

In sum, 2023 promises major changes in the health care industry. These changes will increase the role and use of risk managers, compliance officers, and knowledgeable health care industry arbitrators, especially as more insurers financially incentivize the use of binding arbitration.

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A neutral on the CPR Panel of Distinguished Neutrals, the author is a full-time neutral, arbitrator, meditator, hearing officer, Judge Pro Tem, certified Dispute Resolution Board member, Business Relationship Facilitator, Early Resolution & Dispute Prevention neutral, court-appointed neutral, member of the National Academy of Distinguished Neutrals, and Fellow with the Chartered Institute of Arbitrators. She focuses on commercial, consumer, health care, and employment disputes. See sperowadr.com.  Her CPR Speaks blog posts can be found here.

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