May 19, 2022: “Special Focus on FSS Post Award Compliance and Audits” at ACI “BIG FOUR” Pharmaceutical Pricing Boot Camp

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Merle M. DeLancey Jr. will serve as a speaker for the American Conference Institute (“ACI”) “BIG FOUR” Pharmaceutical Pricing Boot Camp, taking place May 18–19, 2022, as an interactive live virtual conference.

Michael Grivnovics, Director, Federal Supply System, Contracts Division, Veterans Affairs Office of Inspector General, will join Merle to present the “Special Focus on FSS Post Award Compliance and Audits” session on May 19 at 9:00 a.m. EDT.

For more details, visit our website.

The Medicaid Drug Rebate Program and Value-Based Purchasing

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Merle M. DeLancey Jr.

On March 23, 2022, the Centers for Medicare and Medicaid Services (“CMS”) issued long-awaited guidance regarding how drug manufacturers are to report multiple best prices (“BPs”) to the Medicaid Drug Rebate Program (“MDRP”) under value-based purchasing (“VBP”) arrangements. See Manufacturer Release 116 (medicaid.gov/prescription-drugs/downloads/mfr-rel-116.pdf). CMS delayed issuing the guidance to allow states, payers, and manufacturers to administratively prepare for multiple BP reporting in connection with VBP arrangements. The regulatory amendments are effective July 1, 2022.

VBP Arrangements and Medicaid’s Best Price Rule

VBP arrangements consist of additional rebates or price concessions that states may be able to earn based on a drug’s clinical outcomes in Medicaid beneficiaries. CMS’ challenge was reconciling Medicaid’s long-standing BP reporting rule used to calculate manufacturer rebate payments to states with anticipated low prices available under VBP arrangements. Since 1991, the MDRP agreed to cover every drug a manufacturer sells regardless of price. In exchange for this unprecedented access, manufacturers agreed to pay rebates ensuring that Medicaid programs paid no more than the “best prices” paid by manufacturers’ commercial customers. Many argued that Medicaid’s BP rule prevented states from accessing innovative manufacturer programs involving cutting-edge therapies.

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Beyond DOJ’s Blockbuster Year in FCA Recoveries, Whistleblower Activity and Investigations Continue

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Elizabeth N. Jochum and Jennifer A. Short

Jennifer A. Short headshot image


The attention-grabbing headline from the Department of Justice’s (“DOJ”) annually released statistics on False Claims Act (“FCA”) settlements and judgments is that the government recovered more than $5.6 billion from FCA cases in fiscal year (“FY”) 2021. While this is the second largest annual recovery in FCA history and the largest since 2014, procurement fraud cases represented a substantially smaller percentage of the total recoveries than in years past. Healthcare resolutions dominated, accounting for more than five billion of the $5.6 billion in settlements and judgments. In previous years, healthcare matters have accounted for closer to two-thirds of the total recoveries, making last year’s outsized healthcare figure—driven by the blockbuster opioid settlements of late 2020[1]—an outlier.

Beyond the top-line dollar figures, the report shows that FCA activity continues at a healthy, if not fully robust, pace. The COVID-19 pandemic continues to impact qui tam filings; the number of new whistleblower suits dropped to 598 in FY 2021, a ten-year low. The number of DOJ-initiated matters remains higher than the near-term average, particularly in healthcare, but also in Department of Defense (“DOD”)-related cases. Contractors, healthcare providers, and others—especially those who received federal funding through pandemic aid programs—can anticipate that FCA investigations and resolutions will play out over the next several years.

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Affirmative Action Program Compliance Alert: OFCCP Online Contractor Portal

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Merle M. DeLancey Jr.

Beginning February 1, 2022, contractors and subcontractors required to maintain affirmative action plans (“AAPs”) can register for access to a new secure online contractor portal. The portal was developed and will be monitored by the Office of Federal Contract Compliance Programs (“OFCCP”). OFCCP has been working on an information and verification process for three years. In August 2021, the Office of Management and Budget approved OFCCP’s use of the portal. The portal provides contractors a secure method of (i) annually certifying compliance with AAP requirements and (ii) submitting AAPs to OFCCP during audits or compliance evaluations.

Executive Order 11246 and Section 503 of the Rehabilitation Act of 1973 require contractors and subcontractors that hold a contract valued at $50,000 or more and employ 50 or more employees to comply with equal employment and affirmative action requirements. This includes developing and maintaining written AAPs. Currently, only services and supply contractors, not construction contractors, are required to certify compliance.

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The Government Will Likely Look to the Defense Production Act to Fulfill Its 500 Million COVID-19 Rapid, At-Home Test Kits Requirement

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Merle M. DeLancey Jr. and John M. Clerici*


Last week, in response to the Omicron variant, President Biden announced the Government intends to purchase 500 million at-home, rapid COVID-19 tests for distribution to Americans. According to the announcement, Americans will be able to order test kits to be delivered to their homes starting in January. While this may have been a good sound bite, as discussed below, it does not appear realistic. More likely, while Americans may be able to place orders in January, those orders may not be filled until several months into 2022.

As widely reported, rapid COVID-19 at-home test kits are already in short supply. Moreover, the Government has yet to enter into additional contracts beyond the limited contracts to a small number of suppliers previously announced by the Defense Logistics Agency (“DLA”) and a handful of “prototype” contracts finalized in 2020 under the Trump administration. The Government has not made any recent additional contract awards for rapid COVID-19 at-home test kits.

On December 22, one day after the president’s announcement, the Department of Defense (“DoD”), on behalf of the Department of Health and Human Services (“HHS”), issued a Request for Information (“RFI”) seeking information to assess market availability and sourcing for rapid COVID-19 at-home tests. The RFI, however, is not an actual procurement nor contract award and merely seeks information for 500,000 test kits for agency “personnel use.” Responses were due by 3:00 p.m. on December 24. (See, Rapid COVID-19 Antigen Test Kits.) Proposals to supply test kits are unlikely until after a Request for Proposal (“RFP”) has been issued. As of today, no RFP has been issued.

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Department of Veterans Affairs Releases Contractor Vaccination Guidelines

Merle M. DeLancey Jr.

At the end of July 2021, the Biden administration announced that, in addition to federal government employees, onsite federal contractor employees will be required to attest to their COVID-19 vaccination status. Visitors to federal buildings or federally controlled indoor workspaces and other individuals interacting with the federal workforce also will be required to submit a signed Certification of Vaccination form.

Any onsite contractor employee or visitor who declines to respond or responds that they are not fully vaccinated must (i) wear a mask regardless of the level of community transmission; (ii) physically distance; and (iii) provide proof of having received a negative COVID-19 test from within the previous three days if not enrolled in the applicable agency’s testing program. Federal agencies are required to establish a weekly or twice-weekly testing program for individuals not fully vaccinated. In addition, all onsite contractor employees and visitors, even those fully vaccinated, will be required to wear a mask in areas of high or substantial transmission.

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“Rule of Two” Cheat Sheet

Merle M. DeLancey Jr.

June 2021 marked the five-year anniversary of the Supreme Court’s Kingdomware decision[1], which is best known for broadly interpreting the so-called “Rule of Two” requirement flowing from the Veterans Benefits, Health Care, and Information Technology Act of 2006 (the “VBA”). The Rule has been criticized for delaying Department of Veterans Affairs (“VA”) procurements and increasing the prices the government pays for goods and services. However, the importance of the Rule’s purpose—to prioritize and increase the government’s use of small businesses owned by veterans—cannot be credibly challenged.

Over the past five years, the Federal Circuit, Court of Federal Claims, and Government Accountability Office (“GAO”) protest decisions have created some bright-line rules interpreting the VBA’s Rule of Two. After a brief summary of the Rule of Two, this post lays out these bright-line rules, and concludes with predictions regarding future VBA Rule of Two protests.

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Biden Administration Initiatives to Rein in Drug Prices—Déjà vu All Over Again

Merle M. DeLancey Jr.

On July 9, President Biden signed Executive Order 14063, designed to promote competition in the American economy with the goal of lowering prices for families, increasing wages for workers, and promoting innovation and even faster economic growth. The Order is expansive—requiring more than 12 federal agencies to pursue 72 initiatives. One of the Order’s prominent targets is drug pricing. At the signing ceremony, President Biden reiterated that “Americans pay two-and-a-half times more for prescription drugs than in any other leading country,” and “nearly one in four Americans struggles to afford their medication.” We have heard similar words multiple times before over many years, however, to date, there has been little progress.

The Order’s initiatives focusing on drug prices do not appear very different from similar efforts in recent years. First, the Order calls on the Department of Health and Human Services (“HHS”) to create a plan within 45 days to combat “excessive pricing of prescription drugs and enhance domestic pharmaceutical supply chains, to reduce the prices paid by the federal government for such drugs, and to address the recurrent problem of price gouging.” While perhaps a good sound bite, this initiative is not new. In fact, it sounds similar to the Trump administration’s “Most Favored Nation” drug pricing initiative under which Medicare reimbursement for certain drugs would be based on lower prices in other countries. The call for a plan to be delivered in 45 days is curious since it is reported that HHS delivered a new, Biden administration, most favored nation drug pricing rule to the Office of Management Budget for review earlier last week. Perhaps the plan will address how the Biden administration can implement this policy and avoid being bogged down in litigation.

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Paycheck Protection Program Audits Are Upon Us—Borrowers Prepare!

Merle M. DeLancey Jr., Craig Stetson*, and Jennifer A. Short

In our last post on this topic, we touched on how the acceptance, use, and forgiveness of Paycheck Protection Program (“PPP”) loans can be viewed in the context of a Defense Contract Audit Agency (“DCAA”) audit. This post focuses on audits and investigations involving PPP loans. Close scrutiny of PPP loans is not a prediction; it is reality. The Small Business Administration (“SBA”) has announced it will audit all PPP loans in excess of two million dollars following a lender’s submission of a borrower’s loan forgiveness application, and it reserves the right to “spot check” any PPP loan of a lesser amount at its discretion. The Department of Justice has already charged multiple individuals with PPP fraud. And this is just the beginning of what many think will be a tidal wave of enforcement activity involving PPP loans.

Overview of the PPP

The PPP is the largest relief measure for small businesses under the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”). The government has made available nearly one trillion dollars in PPP relief funds through four separate funding measures ($349 billion via the CARES Act; $310 billion via the PPP and Health Care Enhancement Act; $284 billion via the Consolidated Appropriations Act of 2021; and $7.25 billion via American Rescue Plan Act of 2021).

The PPP makes available guaranteed SBA loans to small business that meet certain eligibility requirements. In addition, PPP loans can be forgiven fully if used properly to cover specified business expenses such as payroll, rent, utilities, mortgage interest, and other limited uses. As of April 11, 2021, the SBA had approved more than 9.5 million loans totaling more than $755 billion using more than 5,400 lenders.

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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.

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