Health Care Reform Blog : Health Care Law Reform : McDermott Will & Emery Law Firm

The Facts
The Baucus Bill contains a specific section dedicated to tax exempt hospitals. The section "Additional Requirements for Section 501(c) (3) Hospitals" would establish a series of four new requirements for hospital tax exempt status, which are in addition to the core requirements for tax exempt status currently established under the controversial "Community Benefit Standard,” and include:

• Performance of a periodic community needs assessment
• The adoption, implementation and publicizing of written policies on financial assistance and providing emergency care
• Limitations on bills to patients who qualify for financial assistance
• Prohibition of "extraordinary collection actions" (even those permitted by law)

The Bill also provides for increased reporting and disclosure requirements with respect to Form 990, and for continuing governmental oversight of community benefit related indicators.

What's At Stake
This portion of the Baucus Bill serves as a supplement to, rather than a replacement of, the Community Benefit Standard for hospital tax exempt status under the Internal Revenue Code. It excludes the controversial excise tax and minimum patient charity care standards originally proposed by the Senate Finance Committee last May. In many respects, this may be perceived as a moderate alternative to other, more significant proposals to revise or replace the entire Standard. However, what presently remains unclear are the long-term implications of the proposals relating to mandated IRS review of the Schedule H information, financial statement disclosure and the ongoing Health and Human Services study and review of community benefit expenditures.

Steps to Consider

• Plan for the preparation of a community needs assessment as a tax exemption requirement
• Evaluate the sufficiency of existing policies and procedures on financial assistance, emergency room access and patient billings
• Anticipate clear internal policies prohibiting aggressive collection practices

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The Facts

The most recent markup of the health care reform plan put forth by Senator Max Baucus (D-MT), Chair of the Senate Finance Committee, contains a new $6.7 billion annual sector fee imposed on health insurers. Starting in 2010—well before the individual coverage mandate would go into effect—each affected insurer would pay a portion of the sector fee corresponding to its market share, measured by net health insurance premiums.  The fee would hit not only traditional for-profit insurers, but also tax-exempt organizations, such as fraternal beneficiary societies, that provide health insurance.  Only two forms of health insurance would be exempted:  insurance directly offered by government entities, and businesses’ self-insurance of their employees’ health risks.

What’s at Stake

• The costs of private insurance would likely increase as a result of this fee and other features of the proposed legislation, such as the proposed tax on high-priced "Cadillac" policies.   
• The fee would not be tax deductible, thus magnifying its after-tax effect.
• Businesses that currently buy private insurance for their employees may find it more cost-effective to self-insure.

Steps To Consider

Affected entities should carefully evaluate this fee’s potential impact.  In particular, insurers should consider their current and projected market share, as well as their elasticity of demand, which would determine their ability to pass on this fee.

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The Facts

The health care reform process is speeding along with various proposals that could have substantial impact on the market for pharmaceuticals, particularly those favored by hospitals. A subset of these proposals would expand the 340B Drug Program and increase manufacturer Medicaid Drug Rebate Program (MDRP) payment obligations. 

Both the House Tri-Committee Bill (H.R. 3200) and the Senate HELP Committee Bill include provisions that would expand the categories of facilities that qualify as “covered entities” under the 340B Program. Children’s hospitals, certain DSH hospitals and critical access hospitals are among the six categories included in the proposed changes. Both bills would extend 340B pricing to drugs administered n connection with inpatient services. 

H.R. 3200 would significantly affect the MDRP by expanding the scope of included classes of trade to Medicaid managed care organizations (Section 1743 of H.R. 3200) and Medicaid/Medicare dual eligibles (Section 1181 of H.R. 3200). Section 1181 would expand the scope of the program. Section 1742 would raise the minimum rebate percentage amount from 15.1 percent to 22.1 percent. Section 1742 also would impose a higher rebate percentage on new formulations of older single source or innovator multiple source drugs. Note that the Senate Finance Committee Chairman's Markup proposes an even larger increase in the minimum rebate percentage to 23.1 percent

What’s At Stake

While the 340B-related proposals in the House and Senate Bills would increase the market for discounted drugs, the MDRP proposals from both the House and Senate would also increase the cost to a manufacturer participating in the MDRP.

Steps to Consider

• Work with your commercial account teams to assess the potential additional customer opportunities presented by an expansion of 340B eligibility.
• Prepare to engage in strategic planning around the launch of enhanced versions of existing products subject to higher Medicaid Drug Rebate obligations.
• Work with your finance and government price reporting teams to determine steps needed to keep your price reporting systems in compliance.

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The Facts

The health reform proposal pending before the Senate Finance Committee includes many significant fraud and abuse changes that would affect hospitals, physicians, group purchasing organizations (GPOs) and device manufacturers, among others. Following are some of the more significant changes:

• “Physician Payment Sunshine” provisions would require drug and device manufacturers to report payments to physicians, physician groups and hospitals with residency training programs. The proposal pre-empts state law covering the same types of payments, but does not pre-empt state laws that cover other types of payments, payors or payees. Also, manufacturers and “related group purchasing organizations” would be required to report annually information regarding physician ownership in the manufacturer or GPO.
• Manufacturers that currently are required to maintain records of samples distributed to practitioners under the Prescription Drug Marketing Act would be required to report such information to the U.S. Department of Health and Human Services.
• Physicians making referrals for high-tech imaging services furnished within their office would be required to provide information about other sources of the service, unrelated to the physician’s group practice.
• Providers and suppliers would be required to implement a compliance program as a condition of Medicare or Medicaid participation.
• The anti-kickback statute would be amended to provide that a person need not have actual knowledge of the law or specific intent to violate that law to establish that a violation occurred.
• The process for providers to voluntarily disclose violations of the physician self-referral law (Stark Law) would be re-established. 

What’s at Stake

The health sector should expect that increased fraud and abuse scrutiny and enforcement will be included in any health reform package passed by Congress. While most of the proposals reflect increased scrutiny for providers, the proposal for a Stark Law self-disclosure protocol could be a significant positive development for providers that are looking for a pathway to deal with so-called “technical” Stark Law violations, where there is no fraudulent or abusive conduct, yet the statutory damages are significant.

Steps to Consider

Providers that are subject to the Stark Law should closely monitor the proposals for a self-disclosure protocol in the health reform package and in a stand-alone bill introduced by Rep. McDermott (H.R. 3556).

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