Category: Merle M. DeLancey Jr.

COVID-Related Audits and the DCAA’s New Audit Direction

Merle M. DeLancey Jr. and Craig Stetson*

This is the third in a series of posts regarding what we believe will be an onslaught of government investigations and audits of COVID relief funds and contracting. Previously, we identified likely categories of programs, contracts, and companies the government might investigate or audit. Below, we discuss the Defense Contract Audit Agency’s (“DCAA”) current direction, interests, and initiatives related to contractors’ receipt of COVID relief funds and the impact an uncertain business environment may have on government contract pricing and costing forecasts.

COVID Relief Funds

The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) funding opportunities come with unique government contract compliance requirements and financial reporting obligations. The funding is not “free” and may result in financial consequences to unwary contractors. DCAA knows this and will be conducting audits to test contractors’ compliance with unique relief fund requirements. Contractors unaware of these accounting and reporting requirements risk DCAA questioning or denying costs.

In January 2021, DCAA issued an audit alert to its regional offices pertaining to COVID relief legislation and regulation.[1] The audit alert includes frequently asked questions and answers (“FAQs”) concerning contractors’ request or receipt of COVID relief funding. Originally released last summer, the FAQs have been revised and expanded several times. The FAQs telegraph DCAA’s position on various instances where COVID relief funding intersects with or impacts government contract cost accounting and compliance.

Continue reading “COVID-Related Audits and the DCAA’s New Audit Direction”

The Likely Targets of COVID-Related Audits and Investigations

Merle M. DeLancey Jr. and Craig Stetson*

This is the second in a series of posts regarding what we believe will be an onslaught of government investigations and audits of COVID relief funds and contracting. Previously, we identified the government offices that will be conducting the investigations and performing the audits. Below, we identify three categories of programs, contracts, and companies we believe are more likely to be investigated or audited.

Programs/Contracts

The first group of companies ripe for audits are those accepting COVID relief funding and contractors performing large COVID-specific contracts, as well as contractors performing traditional government contracts that entail certain COVID-related twists impacting performance.

Companies accepting COVID relief funds are likely at the top of auditors’ lists for several reasons. First, because of the magnitude of funds at issue. Second, due to the complex and ambiguous eligibility, use, and reporting requirements. For example, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) and supplemental legislation appropriated funds to reimburse eligible healthcare providers for healthcare-related expenses or lost revenues attributable to COVID. Receipt of funds was easy. Most recipients’ funds were automatically deposited into their bank accounts. But healthcare provider recipients have not yet been required to file reports attesting to the proper utilization of the relief funds. Relief funds recipients in other non-healthcare industries may also be affected. Certain monies received under the CARES Act also involve ongoing and downstream reporting requirements by companies regarding statutory limitations on compensation paid to certain employees and the receipt of a variety of potential tax credits. Thus, recipients’ use of funds has not been tested, and it is unlikely that all usage has been in compliance with the ambiguous requirements and multiple rounds of agency guidance and interpretations.

Continue reading “The Likely Targets of COVID-Related Audits and Investigations”

Under Biden Administration, Will Federal Drug Pricing Transparency Efforts Continue to Outpace State Laws?

Merle M. DeLancey Jr.

During 2019 and 2020, states enacted fewer laws requiring drug manufacturers to disclose pricing and related information. Initially, the slowdown may have been due to federal actions to rein in drug prices through the Trump administration’s multiple executive orders. Thereafter, states were focused on responding to the pandemic and drug pricing was understandably placed on the back burner.

Circumstances have since changed. We now have a new president and administration, and the country is hopefully turning the corner on the COVID-19 pandemic. Inevitably, the federal government and states will again turn their focus to drug prices. While the Trump administration’s executive orders made for good public sound bites, they had little to no actual impact on drug prices. At the end of the day, most of the Trump administration’s initiatives never made it to the regulatory rulemaking phase and those that did were met with legal challenges.

Only a month in, the Biden administration has issued multiple executive orders and memoranda reversing prior executive orders and freezing pending regulations and enforcement policies with respect to existing regulations. After a brief discussion of what we have seen in the early days of the Biden administration in terms of drug pricing, this article reviews new and existing state laws requiring drug manufacturers to report pricing and other information. Thereafter, we again question the efficacy of the state price transparency efforts and what manufacturers should be doing in terms of compliance.

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COVID Audits and Investigations: The Enforcers

Merle M. DeLancey Jr. and Craig Stetson*

This is the first in a series of blog posts concerning the audits and investigations related to the contracts and grants awarded, and relief funds provided, in response to the COVID-19 pandemic. As of February 2021, pursuant to the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), which created the Paycheck Protection Program (“PPP”) and supplemental funding such as the Families First Coronavirus Response Act, the United States government has made available an estimated four trillion dollars in relief funds to businesses and individuals, and the Biden administration is proposing roughly two trillion dollars more.

In addition to the relief funds, the Government has easily awarded more than billions in pandemic-related contracts for everything from vaccines to PPE to hand sanitizers. These levels of funding and spending are unprecedented and have been made at breakneck speed (for the government). Based on these factors and lessons from the past, audits of relief recipients and contractors to confirm appropriate use of government funds are inevitable. And the government has said as much. Of course, if an audit reveals potential wrongdoing or malfeasance, relief recipients and contractors should expect follow-on investigations and enforcement activity.

This first post identifies the myriad of entities that are or will be reviewing—and potentially investigating—relief recipient and contractor representations made to obtain, and subsequent use of, government funds.

Continue reading “COVID Audits and Investigations: The Enforcers”

Biden Administration Already Impacting Drug Prices

Merle M. DeLancey Jr.

The Trump administration issued numerous Executive Orders seeking to rein in drug prices. (See Recent and Possible Executive Orders on Drug Pricing: What You Need to Know – Government Contracts Navigator and Administration Issues Executive Order Tying Medicare Drug Costs to International Prices – Government Contracts Navigator.) While the Executive Orders made for good sound bites, none of them actually impacted drug prices. At the end of the day, most of the Trump administration initiatives never made it to the regulatory rulemaking phase, and those that did were met with legal challenges. Since then, in less than a month since taking office, the Biden administration has issued multiple Executive Orders and memoranda reversing the Trump-era Executive Orders and freezing pending regulations and enforcement policies with respect to existing regulations. Beginning on its first day, the Biden administration took action impacting drug prices and potentially signaled, directly or indirectly, the polices we may see over the next four years. The new administration’s actions have continued at a rapid pace. Continue reading “Biden Administration Already Impacting Drug Prices”

Biden Administration Prioritizing Federal Contractor Workforce Protections

Merle M. DeLancey Jr.

Protection of the workforce is a major focus of the Biden Administration. Rather than attempting to pass new legislation or amend existing statutes, the path of least resistance in the short term appears to be the use of executive orders to implement or, as here, rescind Trump Administration Executive Orders and put into effect many of the same policies as the Obama Administration. The starting point for the Biden Administration is to take the steps to implement rules with respect to the federal workforce and the workforce performing federal government contracts.

One of President Biden’s first actions in office was to direct federal government agencies to start the work to permit implementation of certain changes within the first 100 days of the administration through further executive action. These initiatives most likely will include an increased federal contractor minimum wage, requirements to offer employment to employees of an incumbent contractor, perhaps requiring contractors to disclose labor violations when seeking federal contracts, and increased Service Contract Act (“SCA”) enforcement.

      • President Biden’s Executive Order 14003 on Protecting the Federal Workforce issued on January 22, among other requirements, directed the Office of Management and Budget to make recommendations regarding establishing a $15 minimum wage for federal employees and federal contractors and subcontractors (the current federal contractor minimum wage is $10.95) and to provide employees with emergency paid leave.

      • President Biden’s Executive Order 13985 on Advancing Racial Equity and Support for Underserved Communities Through the Federal Government issued on January 20 revoked President Trump’s controversial Executive Order prohibiting certain types of workplace diversity trainings for federal government contractors.
Continue reading “Biden Administration Prioritizing Federal Contractor Workforce Protections”

What Could a DHHS Secretary Becerra Mean for the Pharmaceutical Industry?

Jay P. Lessler, John M. Clerici, and Merle M. DeLancey Jr.







President-elect Biden plans to nominate California Attorney General Xavier Becerra to serve as Secretary of the U.S. Department of Health and Human Services (“DHHS”). The current Administration has frustrated the pharmaceutical industry with numerous Executive Orders and proposed rules and regulations trying to impact drug pricing. DHHS’s interim final rule implementing a Most Favored Nations Model (i.e., an international pricing index) for reimbursement of certain Medicare Part B drugs is the most recent example.

Numerous pundits suggested that pharmaceutical companies manufacturing vaccines and other drugs to respond to the COVID-19 pandemic waited until after the November election to announce their progress. The rationale was that the companies would prefer working with a Biden Administration rather than suffer through four more years of acrimony with the Trump Administration. The Becerra announcement, however, could indicate the pharmaceutical industry is not yet out of the woods. Continue reading “What Could a DHHS Secretary Becerra Mean for the Pharmaceutical Industry?”

Where Are We Going with Section 889 Part B?

Justin A. Chiarodo, Merle M. DeLancey, Jr., and Robyn N. Burrows

About two months have passed since the August 13, 2020, effective date of Part B of Section 889 of the FY 2019 National Defense Authorization Act. Part B, sometimes referred to as the Chinese telecommunications equipment ban, broadly prohibits the federal government from contracting with entities that use certain Chinese telecommunications (including video surveillance) equipment and services.

After the FAR Council published its July 10, 2020, Interim Rule, contractors, large and small, spent countless hours working to be able to certify compliance by August 13. This deadline was critical because the Interim Rule said that absent such a certification, a contractor was ineligible for future contract awards. That is, government agencies were prohibited from renewing or extending existing contracts with contractors unable to certify Part B compliance. Indeed, agencies were prohibited from issuing an order under an existing contract to a contractor that failed to certify compliance.

Yet, despite the Rule’s laudable policy goals, the government’s piecemeal and inconsistent implementation has placed government contractors in an untenable position. Continue reading “Where Are We Going with Section 889 Part B?”

Administration Issues Executive Order Tying Medicare Drug Costs to International Prices

Merle M. DeLancey Jr.

On Sunday, while everyone was watching the return of NFL football, the Administration was busy fulfilling a promise it made in July to lower drug prices paid by the United States and Medicare beneficiaries by tying pricing to certain foreign countries.

In July, the Administration issued three Executive Orders concerning drug pricing and access to critical therapies. At that time, the Administration also announced that, unless the pharmaceutical industry proposed a plan that would decrease prices paid by Medicare Part B by August 24, the Administration would move forward with its own plan. Apparently, no agreement with the industry was reached because on Sunday the Administration announced its own plan.

In what is being called the “Most Favored Nations” Executive Order, the Administration is re-starting its efforts to reduce the prices the United States pays for drugs under Medicare Parts B and D. The Order uses the “most-favored-nation price” as the benchmark for prices to be paid by the United States. Most-favored-nation price is defined as the lowest price, after adjusting for volume and differences in national gross domestic product, for a pharmaceutical product that the drug manufacturer sells in a comparable member country of the Organisation for Economic Co-operation and Development (“OECD”).

Perhaps most surprising is the increased scope of the Order. The Order goes beyond what was proposed in July by seeking to link not only Medicare Part B drug prices but also Medicare Part D prices to lower prices paid by other countries. With respect to both Medicare Parts, the Department of Health and Human Services’ (“HHS”) “payment model” is to test whether poor clinical outcomes improve as a result of patients paying lower prices—no more than the most-favored-nation prices—for certain high-cost pharmaceuticals and biologics.

While the Order makes for a snappy sound bite, any potential benefits of lower drug prices will not be seen anytime soon. First, HHS will need to complete its rulemaking, which could have its own challenges. For example, in November 2018, HHS published an Advance Notice of Proposed Rulemaking (“ANPR”) proposing to implement an international reference pricing payment model for use by Medicare and Medicaid. Ultimately, nothing became of the ANPR. Even then, implementation of the contemplated programs is precarious. Industry opposition to the Order has been palpable and any HHS plan will likely face legal challenges that could substantially delay implementation.

Executive Order Regarding Domestic Production and Purchase of Essential Medicines: A Lot to Unpack and More Than Meets the Eye

Merle M. DeLancey Jr. and John M. Clerici 

On August 6, 2020, President Trump issued another Executive Order (“EO”) that will likely have dramatic and long-lasting effects on the pharmaceutical industry.[1] The impact of the EO may be far greater than currently anticipated. It is well-considered, well drafted, and structured in a way that is likely to survive if there is a change in Administration. The EO will have a greater and immediate impact on Medical Counter Measures (“MCMs”) for chemical, biological, radiological, and nuclear threats, and emerging infectious diseases than on Essential Medicines. The inclusion of Critical Inputs (i.e., active pharmaceutical ingredients (“API”)) and starting materials potentially makes the impact far reaching, especially when coupled with the significant funding from the federal government to support onshoring efforts as a result of the COVID-19 pandemic. Continue reading “Executive Order Regarding Domestic Production and Purchase of Essential Medicines: A Lot to Unpack and More Than Meets the Eye”

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