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Keating, Muething & Klekamp PLL

Final Rules: Executive Compensation Disclosure
On July 26, 2006, the Securities and Exchange Commission approved final rules amending the disclosure requirements for executive and director compensation, related party transactions, director independence and other corporate governance and related matters. The new rules will be effective for proxy statements filed for fiscal years ending on or after December 15, 2006.

The SEC received more comments on these proposed rules than any other rules proposed in the SEC’s history. The final rules have not been issued, but the SEC’s press release following its approval of the final rules summarizes the main changes made from the rules proposed in January.

We prepared a letter dated February 3, 2006 outlining the proposed rules. The February 3 letter accompanies this letter. Below we summarize the main changes made from the rules proposed in January:

• Individuals Included in Summary Compensation Table. The proposed rules would have required Summary Compensation Table disclosure of compensation for up to three non-executive officer employees whose compensation exceeded that of any of the “Named Executive Officers” (the principal executive officer, the principal financial officer and the next three most highly compensated executive officers). This provision is not in the final rules but is being re-proposed by the SEC for further public comment.

• Stock Option Grant Practices. Primarily as a result of the recent stock option timing issues, the new rules will require that issuers explain their option granting practices. Specifically, issuers will have to disclose whether option grants are specifically timed to public releases of company information (like earnings releases) and circumstances under which the exercise price of options granted does not match the market price of the stock on the date of grant.

• Compensation Committee Report. As proposed, the rules will require a new section entitled, “Compensation Discussion and Analysis” requiring issuers to explain their compensation policies in narrative form. The Compensation Discussion and Analysis would be “filed” with the SEC. In addition, unlike the proposed rules, the final rules retained the requirement of a compensation committee report which would be “furnished” with the SEC. The compensation committee report requires that the compensation committee state whether it reviewed the Compensation Discussion and Analysis and recommended its inclusion in the proxy statement.

• Deferred Compensation Account Earnings. The proposed rules would have required disclosure in the Summary Compensation Table of all earnings on deferred compensation accounts. The final rules, however, retain the current practice of requiring solely the disclosure of above-market earnings on such accounts.

• Stock Performance Graph. The proposed rules would have eliminated the stock performance graph. The final rules retain the stock performance graph, but the graph will now be required in the Form 10-K and in Annual Reports to Shareholders along with the other stock price information.

•Total Compensation Figure. The requirement that issuers include a total compensation amount was retained. However, the column was moved to become the last column of the Summary Compensation Table so that the numbers would add from left to right.

• 8-K Executive Compensation Disclosure. The SEC clarified that certain employment arrangements and amendments must be disclosed on Form 8-K only for an issuer’s Named Executive Officers. Existing rules are unclear as to whether disclosure is required for all executive officers or only the Named Executive Officers.

08-05-2006

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Blank Rome LLP.

CMS Guidance Regarding National Coverage Determinations with Data Collection as a Condition of Coverage
On July 12, 2006, the Centers for Medicare and Medicaid Services (CMS) issued guidance titled: National Coverage Determinations with Data Collection as a Condition of Coverage: Coverage with Evidence Development (hereinafter “Guidance”).1 The Guidance sets forth situations in which CMS may allow Medicare coverage for items and services with the condition that additional evidence must be gathered through research or clinical studies. It also sets forth a data registry system for collecting the additional evidence.

In addition, CMS is promulgating a new policy which will govern Medicare-funded clinical research.2 Comments are due August 9, 2006.

This article explains the new Guidance and proposed policy and their importance to drug and device manufacturers.

II.National Coverage Determinations

National Coverage Determinations (NCD) are decisions CMS makes in response to requests for Medicare coverage of particular items or services.

If CMS determines that the item or service is “reasonable and necessary” for Medicare beneficiary care, CMS will allow coverage. CMS may issue one of the following types of NCD:

No change in current coverage;
A non-coverage determination;
Coverage without special conditions;
Coverage with special conditions; or
Coverage when provided pursuant to a pre-specified process for gathering data while implementing additional beneficiary protections and safety measures.
If either of the last two types of NCDs are warranted, CMS may issue a National Coverage Determination with a Condition of Evidence Development (CED). This type of determination allows coverage of the item or service while additional evidence is gathered regarding its reasonableness and necessity. At the conclusion of the evidence development, CMS may reissue the NCD either granting or denying coverage.

Two types of CEDs can be issued: Coverage with Appropri-ateness Determination (CAD) and Coverage with Study Participation (CSP). CAD is conditioned upon specific additional data collection. CSP is conditioned upon care being delivered in a specified research-related setting. After the study ends, Medicare coverage reverts to its pre-study level unless CMS reissues the NCD.

III.Guidance for Coverage with Evidence Determination

A.Condition of Coverage: Coverage with Appropriateness Determination

If an NCD with CAD is granted, the item or service is only covered if it is provided to patients who meet the specific characteristics detailed in the NCD. A CAD may be issued where CMS determines that there is enough evidence to find that an item or service is reasonable and necessary, but where CMS needs additional information to ensure that the item or service is being provided as specified in the NCD. A CAD would be appropriate in the following circumstances:

The newly covered item or service should be restricted to patients with specific conditions and who meet specific criteria;
The newly covered item or service should be restricted to use by providers with specific training or credentials;
“Clinical thought leaders” have concern that substantial opportunities exist for misuse of the item or service; or
The coverage determination significantly changes how providers manage patients when utilizing this newly covered item or service.
Data used in the CAD must be submitted to databases or registries specifically designed for collecting such data. (See § V for further discussion).

B.Condition of Coverage: Coverage with Study Participation

CSP will be issued if not enough information to grant coverage exists, but where additional information gathered pursuant to a clinical study may better clarify the impact the item or service may have on Medicare beneficiaries. The level of evidence which will now prompt a CSP would previously have resulted in a non-coverage determination. However, if a CSP is granted, the item or service is only considered reasonable and necessary while the evidence is being developed. The following types of situations could lead to a CSP:

Previous studies have produced comprehensive evidence of the effects of the item or service, but they have not evaluated outcomes relevant to Medicare beneficiaries;
Available clinical research does not adequately “address the risks and benefits...of off-label or other unanticipated uses of the item or service” to Medicare beneficiaries;
Available clinical research studies do not include specific patient groups with disease characteristics that are prevalent in Medicare beneficiaries;
Very little published supporting research exists for services and devices already on the market, but which are the subject of new applications; or
Evidence to support a reasonable and necessary benefit of an item or service is only available for patients with specific clinical criteria or for providers with specific experience or qualifications.
CMS may grant a CSP even where the item or service has not been found to be reasonable and necessary if the evidence can assure basic safety, the item or service has a high potential to provide a significant benefit to Medicare beneficiaries, and there are significant barriers to conducting clinical trials. It may also grant coverage if data and evidence which result from a study could be used in future NCDs. Any studies conducted pursuant to a CSP must comply with the CMS Clinical Research Policy. (See § VII for further discussion).

IV. Principles for the Application of Coverage with Evidence Development

The Guidance sets forth the following eight principles which will govern the application of CED:

1.NCDs requiring CED will occur within the established NCD process;

2.CED will not be used when other forms of coverage are justified by available evidence;

3.CED will generally expand access to technologies and treatments for Medicare beneficiaries;

4.CMS does not expect to use CED frequently;

5.CED will lead to the production of evidence to compliment existing medical evidence;

6.CED will not duplicate or replace the Food and Drug Administration’s (FDA) authority to assure safety, efficacy, and security of drugs, biologicals, and devices;

7.CED will not assume the National Institute of Health’s (NIH) role in fostering, managing, or prioritizing clinical trials;

8.Any application of CED will be consistent with applicable federal laws, regulations, and patient protections.

V. Data Sources and Collections

A. Data Collection and Use by CMS

CMS may issue an NCD that requires study data to be sent to an approved centralized database for use in any purposes specifically outlined in the NCD, including evaluating the progress of the study or making future coverage determinations. The Guidance states that, “collection and use of this data...is for purposes of research and will meet all relevant patient protections.” The scope and duration of the data collection is either determined by the applicable NCD or by CMS. If the collection is no longer necessary because NCD requirements have been met, CMS will stop the collection.

B. Data Collection and Use by Non-CMS Researchers

If non-CMS researchers have a signed Data Use Agreement with CMS, they may access CED data contained in the Medicare enrollment database and other claims data. Proposals for access to the data must comply with specific application requirements. Data can be used by health plans for quality improvement programs, by providers to track short-term outcomes, by hospitals and facilities to monitor performance, or for other purposes.

VI. Funding for Clinical Trials and Registries

CMS has discretion to determine whether it will fund clinical trials. See SSA §1862(a)(1)(E). It may also fund investigational or routine costs for a trial in an NCD with CED, but it will not fund non-clinical research costs. CMS will pay clinical costs of patient care for beneficiaries where data collection is required; however, CMS will not fund registry development and maintenance. CMS may reimburse registries for data submission to CMS. If possible, the data collections should be facilitated through existing data systems.

VII. CMS’ Proposed New Clinical Trial Policy

On July 10, 2006, CMS solicited comments regarding potential revisions to the Clinical Trial Policy (Policy). With the posting of the Policy, CMS opened a 30 day comment period on ten specific issues as well as for any other relevant issues that commenters feel should be addressed. The outlined topics for comment are:

Payment criteria for clinical costs in research studies other than four clinical trials;
A strategy to ensure that Medicare covered clinical studies are enrolled in the NIH clinical trials registry website;
Criteria to assure that any Medicare covered clinical research study includes a representative sample of Medicare beneficiaries;
Definitions of routine clinical cost care and investigational costs in clinical research studies including clinical trials;
Remove the self-certification process that was never implemented;
The scientific and technical roles of Federal agencies in overseeing IND exempt trials;
Expand studies eligible for coverage of routine clinical care costs;
Coverage of items and services that do not meet the requirements of SSA §1862 (a)(1)(A) but are of potential benefit through the NCD process;
Conditions under which an item or service that is not covered nationally may be covered in the context of clinical research to clarify the impact of the item or service on health outcomes of Medicare beneficiaries; and
Medicare policy for payment of humanitarian use device costs.
Comments are due on August 9, 2006. CMS expects to issue a decision memorandum by January 10, 2007.

To date, three comments have been received. The first was submitted by the Yale University Director of Medical Billing Compliance requesting that Medicare reexamine its position that a clinical trial sponsor who is willing to pay for the patient’s cost of clinical services if the patient’s insurance does not, is automatically deemed the primary payer for the services. The second comment, from a compliance specialist at Milton S. Hershey Medical Center asks CMS to clarify how clinical trials can meet specified “qualifying criteria” and, thereby, have their routine costs covered. The final commenter, who did not give her position or affiliation, requests that CMS also examine the impact the policy could have on Medicare Advantage plans and clarify the MA plans’ roles in clinical research policy generally.

VIII. Conclusion

The Guidance, Policy, and any subsequent guidance CMS may issue are important to drug and device manufacturers and other entities who are seeking approval for Medicare coverage under Part B. The Guidance may be especially useful in situations where there is sufficient evidence that the drug, biological or device is reasonable and necessary for certain indications, but not for others, where there is a need to restrict use to specific populations, or where the existing evidence is not specific to the Medicare population.

It is important to note that regardless of the approach taken, specific steps and processes must be followed in an application for NCD with CED. CMS may still issue a non-coverage determination after the studies or research have been conducted if it is not convinced that the item or service is reasonable and necessary for the proper care of Medicare beneficiaries.

For further information or assistance regarding NCDs with CED, in the proposed Policy, or related topics, please contact a member of the Blank Rome Health Law Practice Group.

Claudia Schlosberg is a partner in the Washington, D.C. office of Blank Rome LLP and a principal in Blank Rome Government Relations llc. She focuses on health care policy, regulation and compliance issues. Ms. Schlosberg can be reached at 202.772.5985.

Jessica M. Swartz is an associate in the Washington, D.C. office of Blank Rome LLP. She can be reached at 202.772.5871.

Blank Rome’s Health Law Practice Group focuses on the core areas of Acute Care, Hospitals, and Health Systems; Compliance and Enforcement; Home and Community Based Care; Long Term Care; Health Insurance and Managed Care; and Public Health. The Health Law Practice Group serves clients nationally in more than 29 states, and internationally through affiliations in the United Kingdom, and the Far East.

FOOTNOTES

1.Ctrs for Medicare and Medicaid Servs, Nat’l Coverage Determinations with Data Collection as a Condition of Coverage: Coverage with Evidence Development (July 12, 2006) at www.cms.hhs.gov/mcd/ncpc_view_document.asp (unless otherwise noted, the content of this article is derived from the Guidance. All direct quotations are to the Guidance).

2.Ctrs for Medicare and Medicaid Servs, NCA Tracking Sheet for Clinical Trial Policy (CAG-00071R) at www.cms.hhs.gov/mcd/viewtrackingsheet.asp.

08-05-2006

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Blank Rome LLP.

OIG Findings Regarding Medicare Part B Reimbursement for Oncology Drugs
In June, 2006, the Department of Health and Human Services (HHS), Office of Inspector General (OIG) published: A Comparison of Average Sale Prices to Widely Available Market Prices: Fourth Quarter 2005 (hereinafter “Report”).1 The Report concludes that for five of nine procedure codes reviewed, the average sales price (ASP)2 exceeded the widely available market price (WAMP)3 by at least 5% and that the difference between ASP and WAMP for these five procedure codes ranged from 17% to 185%. The OIG estimates that Medicare could save as much as $67 million in 2006 on these five procedure codes alone if reimbursement amounts were lowered to WAMP.

II. Background

The Medicare Modernization Act (MMA), Section 1847A of the Social Security Act (SSA), changed reimbursement for Medicare Part B drugs from 95% of average wholesale price (AWP) to 106% of ASP net of volume discounts, prompt pay discounts, cash discounts, free goods that are contingent on any purchase requirement, chargebacks, and rebates (other than Medicaid rebates).

MMA gives the Secretary of HHS (hereinafter “Secretary”) authority to disregard the ASP for a drug or biological under two circumstances. The first is if there is a public health emergency, a documented inability to access drugs and biologicals, and a concomitant increase in the price which is not reflected in the manufacturer’s ASP for one or more quarters. The second is if the ASP for a drug or biological exceeds the WAMP or the AMP by 5% in 2005 and 2006, and by an amount specified by the Secretary for subsequent years. See SSA §1847A(d)(3).

The OIG is responsible for conducting studies, including surveys, to determine the WAMP for drugs and biologicals. If the OIG finds that the ASP for a drug exceeds the WAMP or AMP by more than the applicable percentage, the Secretary must substitute either the WAMP or 103% of ASP, whichever is lesser, beginning with the next quarter. See SSA §1847A(d)(3)(C).

III. Scope of OIG Review

For this Report, the OIG reviewed a sample of forty procedure codes used in a September 2005 study of physician hematology and oncology practices’ ability to obtain drugs at 106% of ASP. Using the data from that study, the OIG found that physicians paid at least 5% over ASP for nine of the forty procedure codes. The OIG compared the second quarter 2005 volume-weighted ASP with the fourth quarter 2005 WAMP for each of the nine codes.

Of these nine procedure codes, five had a volume-weighted ASP that was more than 5% over WAMP (ranging from 17% to 185%), not including physician discounts. See Table 1 for the five procedure codes and price differences identified by the OIG.

Table 1: Procedure Codes Identified by OIG4

Procedure Code
Short Description
Widely Available Market Price
Second Quarter 2005 ASP
Percentage Difference

J9045
Carboplatin
$11.667
$33.259
185.1%

J1100
Dexamethasone sodium phosphate
$0.062
$0.103
65.2%

J1260
Dolasetron mesylate
$3.926
$6.147
56.6%

J9390
Vinorelbine tartrate
$31.000
$40.410
30.4%

J1626
Granisetron HCI
$5.738
$6.735
17.4%

IV. CMS Comments and OIG Response

A. CMS Comments

In its response to the Report, CMS stated that the findings “are very helpful to our ongoing efforts to enhance implementation of the new ASP methodology,” but that it disagreed with the OIG’s final calculation.5 CMS stated that because the OIG’s analysis was based on forth quarter 2005 pricing data, it did not accurately reflect a recent downward trend in drug prices. According to CMS, the trend caused the actual Medicare prescription drug expenditures for the five procedure codes studied to be substantially less than what the OIG calculated. Specifically, CMS stated that the price for carboplatin, the drug for which the OIG cited reimbursement at 185% over ASP, went down 60% in the two quarters subsequent to the OIG’s examination.

B. OIG Response

The OIG responded to CMS’ comments by stating that CMS has not specified a plan to further reduce the amount of money it pays for prescription drugs and pharmaceuticals. The OIG recognized that prices for certain drugs have gone down since its initial review, but states that of the five procedure codes which were reimbursed above 5% over WAMP using the September 2005 pricing conventions, four still remained in that category when the pricing was updated to reflect changes. The OIG also pointed out that even though the price for carboplatin decreased, it is still over 12% above WAMP. It concluded by stating that the MMA requires the Secretary of HHS to use either WAMP or 103% of AMP for the four procedure codes the OIG cited as being more than 5% over WAMP.

V. Conclusion

It is clear that tension between the OIG and CMS continues regarding how CMS should respond to the OIG’s findings regarding the pricing of prescription hematology and oncology drugs under Medicare Part B. While it appears that CMS is not going to take action to lower reimbursement at this time, the OIG continues to vigorously pursue investigation of pharmaceutical pricing. Further, the OIG has authority to impose civil money penalties for misrepresentations in the reporting of ASP prices for drugs or biologicals. Penalties may be imposed in an amount of up to $10,000 for each price misrepresentation and for each day in which such price misrepresentation was applied. Accordingly, manufacturers are reminded of the importance of accurately calculating and reporting ASP for their Medicare Part B reimbursable drugs and biologicals.

For further information or assistance regarding the OIG report or other pricing issues, please contact a member of the Blank Rome Health Law Practice Group.

Claudia Schlosberg is a partner in the Washington, D.C. office of Blank Rome LLP and a principal in Blank Rome Government Relations LLP. She focuses on health care policy, regulation and compliance issues. Ms. Schlosberg can be reached at 202.772.5985.

Jessica M. Swartz is an associate in the Washington, D.C. office of Blank Rome LLC. She can be reached at 202.772.5871.

Blank Rome’s Health Law Practice Group focuses on the core areas of Acute Care, Hospitals, and Health Systems; Compliance and Enforcement; Home and Community Based Care; Long Term Care; Health Insurance and Managed Care; and Public Health. The Health Law Practice Group serves clients nationally in more than 29 states, and internationally through affiliations in the United Kingdom, and the Far East.

FOOTNOTES

1.Daniel R. Levinson, Inspector General, Dept. of Health & Human Svcs., A Comparison of Average Sales Prices to Widely Available Market Prices: Fourth Quarter 2005, OEI-03-00430 (June 2006) at www.hhs.oig.gov (hereinafter “Report”).

2.ASP is the amount of a manufacturer’s quarterly sales “to all nonexempt purchasers” divided by the total number of a manufacturer’s quarterly units “sold…in that same quarter.” ASP is calculated after any price concessions, discounts, or other rebates are applied. Report at pg. 2 (SSA § 1847A(C)).

3.WAMP is “the price that a prudent physician or supplier would pay for the drug, net of any routinely available price concessions.” Report at pg. 3 (SSA § 1847A(d)(5)(A)).

4.This table is taken from report at 10.

5.Letter from Mark B. McClellan, Administrator of Dept. of Health and Human Svcs. to Daniel R. Levinson, Inspector General (May 12, 2006)(Report at 14).

08-05-2006

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Lommen, Nelson, Cole & Stageberg, P.A.

Kay Hunt Speaking at Supreme Court Review CLE
Kay Hunt will be speaking at the "Supreme Court and Appeals Court Review" CLE presented by the Minnesota Legal Services Coalition on October 6th. The CLE will take place at William Mitchell and Kay will start the day off by co-presenting with Justice Paul H. Anderson on "Minnesota Supreme Court and Court of Appeals Case Review.

08-04-2006

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Lieff, Cabraser, Heimann & Bernstein, L.L.P.

Associated Press, "Investors react negatively to Apple disclosure; Need to restate earnings over stock options issues drive shares down"
As the stock option cloud over Apple Computer Inc. darkened, investors tried to determine Friday whether the company’s popular products are powerful enough to overcome the potential accounting and legal risks facing the maker of the iPod and the Macintosh.

The possibility that the improper handling of employee stock options might erase some of Apple’s past profits or, even worse, plunge its renowned CEO, Steve Jobs, into a legal morass spooked some investors.

Friday’s backlash against Apple wasn’t as a severe as Wall Street’s treatment of several other companies that have recently raised doubts about the accuracy of their past financial statements because insiders mishandled stock option awards.

More than 80 other companies nationwide are entangled in the stock option imbroglio. But Apple’s ubiquitous brand makes it stand out from the rest of the pack. “Many will be watching this case because ... Apple may be the closest to a household name,” predicted former federal prosecutor Michael Koenig, who is now in private practice in Washington, D.C.

Learn more about the stock options mishandling litigation.

Submit Your Case
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About Lieff Cabraser
Lieff Cabraser Heimann & Bernstein, LLP is a sixty-plus attorney law firm with offices in San Francisco, New York, Beverly Hills/Los Angeles and Nashville.
Since 1972, Lieff Cabraser has successfully represented plaintiffs in class actions, group and individual cases in the fields of personal injury and mass torts, employment discrimination and unfair employment practices, antitrust, consumer protection, defective products, securities and investment fraud, environmental and toxic exposure, aviation disasters and civil and human rights.

08-04-2006

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Thelen, Reid, Brown, Raysman & Steiner, LLP

Fourteen Thelen Reid Attorneys Named New York Super Lawyers
Thelen Reid & Priest LLP announced today that 14 partners in the firm's New York office have been named ""New York Super Lawyers"" for 2006. The annual Super Lawyers directory represents the top 5 percent of New York attorneys in 55 practice areas.

Attorneys highlighted in New York Super Lawyers represent Manhattan's top attorneys and are chosen by their peers through the independent research of the publishers of Law & Politics Media.

Ballots were sent to every lawyer in Manhattan who had been practicing for at least five years—59,000 in all. The candidate search consists of reviewing databases, online sources, national and local periodicals and trade journals. Candidates are evaluated by a blue ribbon panel of peers in their practice area.

08-04-2006

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McGlinchey Stafford PLLC

Donna Klein Appointed as Managing Partner of McGlinchey’s New Orleans office
McGlinchey Stafford PLLC announced the appointment of Donna Klein as the new Managing Partner of the law firm’s New Orleans office.

In her new role as Managing partner, Klein will focus on the day-to-day operations and management of the New Orleans employees and office. Donna Klein joined McGlinchey Stafford in 1988 and also serves as the Chair of the firm’s multi-office Healthcare practice and as the Marketing Partner.

Klein’s healthcare focused practice combines her unique prior experience as a registered nurse with her legal practice. She has represented hospitals, physicians, health maintenance organizations, preferred provider organizations, independent practice associations, national and multi-national hospital ownership companies and various other health care providers and regulatory bodies throughout the nation. Her practice includes advising clients in the areas of fraud and abuse, anti-self-referral laws, civil and criminal investigations, medical staff credentialing, managed care, risk management, contracts and reimbursement. She has experience speaking and publishing extensively on a variety of medical-legal issues. Klein has been selected as one of the Woodward White's Best Lawyers in America in Health Care each year since 1991.

Klein is actively involved in the New Orleans community through serving as a board member of the Morial Convention Center and as a member of the Committee for a Better New Orleans/Metropolitan Area. A merit to her knowledge and expertise in the area, Klein has served as an advisor to three Louisiana Governors on healthcare matters for the state.
“Donna has been an essential part of our New Orleans office for many years and her leadership, enthusiasm and personal attention to detail will benefit our New Orleans office well as she steps into this important role,” said Woody Norwood, Senior New Orleans member and former Managing Partner.

08-04-2006

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