Strategizing to Operationalize the Medicare Advantage and Part D Final Rule

by Anne W. Hance, Joel L. Michaels and Kate McDonald

CMS’s February 12, 2015 final rule further implements the last of the programmatic changes initially set out in the January 2014 proposed rule.  Prompt attention and advance planning will facilitate Medicare Advantage Organizations’ and Part D Plan Sponsors’ implementation of requirements effective for contract year 2016.

Read the full article here.

Lawmakers Reach Deal to End Government Shutdown, Raise Debt Ceiling

by Andrea M. Bergman, Karen S. Sealander, Erica Stocker and Eric Zimmerman

While the focus over the past 16 days has been on the shuttered government and the prospect of the United States defaulting on its debt obligations, there are subtexts that are relevant to the health care industry.  This On the Subject details five key health care takeaways.

Read the full article here.

CMS Changes to the Clinical Laboratory Fee Schedule

by Christine Park Song, John Warren and Eric Zimmerman

On Friday July 19, 2013, the Centers for Medicare & Medicaid Services (CMS) published the 2014 Medicare Physician Fee Schedule and the 2014 Medicare Hospital Outpatient Prospective Payment System Notices of Proposed Rulemaking.  The proposed rules are available in the Federal Register at pages 43282 and 43534, respectively.   These notices include three proposed changes to Medicare payment for Clinical Laboratory services that would address the rapid technological changes in the clinical diagnostic lab environment.

First, CMS is proposing a process that would allow for the systematic examination of payment amounts on the Clinical Laboratory Fee Schedule (CLFS).   The process would:

  • Identify those CLFS codes that had undergone “technological changes” affecting the price of the test. CMS defines a technological change as any change to the tools, machines, supplies, labor, instruments, skills, techniques and devices that results in changes to the resources required to perform the test, the types of personnel required to perform the test and/or the volume, frequency and site of service of the testing;
  • Review all CLFS codes over a five-year period, beginning with the oldest codes, reviewing a portion of the total codes each year; and,
  • Make appropriate adjustments to payment rates on the CLFS whenever necessary.  CMS anticipates that most adjustments will be decreases; however, they note that the process could result in increased payments as well.

Notably absent from their review is an analysis of the costs of the resources needed and used to develop tests,  including intellectual property costs, which can be a significant portion of the costs of newer tests and costs which are generally not accounted for under the CLFS.

The full list of codes that CMS is proposing to package is available on CMS' website (Addendum P).

The second proposal involves proposed changes to the Hospital Outpatient Prospective Payment System (OPPS) for CY 2014.  Specifically, the Notice of Proposed Rulemaking includes a proposal to bundle clinical laboratory payments into the OPPS payments for related services.  CMS believes that, in general, clinical laboratory tests essentially support the underlying outpatient encounter. CMS argues that, because the OPPS is meant to be an all-inclusive payment system and not a fee schedule, bundling clinical laboratory payments into the OPPS payment is appropriate.

CMS proposes two exceptions to this policy: 

  • If a lab test is unrelated to the primary service, that is, if the test was ordered for purposes unrelated to the OPPS encounter, it would continue to be paid separately. Lab tests meeting this exception criterion would also need to be ordered by a physician other than the physician ordering the OPPS service. 
  • Exempt molecular diagnostic tests, citing the novelty and different use patterns for these tests. 

The third proposal would limit Medicare payments for non-facility based services paid under the Physician Fee Schedule (PFS) to the amount paid when the service is performed in the facility setting. CMS believes that anomalies in data used to set rates under the PFS and the way that data are used in the PFS’s resource-based Practice Expense (PE) methodology leads to inaccurate payments for certain services. CMS believes that PE input data voluntarily submitted to the Relative Value Scale Update Committee (RUC) may be inaccurate, incomplete or biased. Further, the lack of a comprehensive review and evaluation of PE inputs is believed to contribute to these discrepancies. For most services, this proposed policy change will have a small impact (-2 percent to +1 percent); however, for clinical laboratories in particular, CMS estimates that this proposal will reduce payments by 25 percent.

If finalized, these three proposals would operate to substantially affect Medicare payment for clinical laboratory services, and could likewise affect market demand for some tests.

New Developments Regarding ACA Contraception Coverage Requirements

by Amy M. Gordon, Anne W. Hance and Susan M. Nash

The U.S. Department of Health and Human Services (HHS), the U.S. Department of Labor’s Employee Benefits Security Administration and the U.S. Department of the Treasury’s Internal Revenue Service issued a proposed rule on February 1, 2013 presenting a revised approach for the coverage of women’s contraception by certain religious employers under the Affordable Care Act. The proposed rule, which is open for public comment through April 8, 2013, has significant implications for employers, health insurers and third-party administrators (TPAs). 

The Landscape

The Affordable Care Act requires non-grandfathered group health plans and health insurance issuers offering individual and group health insurance coverage to provide first-dollar coverage for select preventive services. For women with reproductive capacity, this includes FDA-approved contraceptive, sterilization procedures and patient education, as prescribed by a health care provider. The agencies adopted an exemption from this requirement for group health plans sponsored by religious employers. The agencies also established a temporary enforcement safe harbor for non-grandfathered group health plans sponsored by certain nonprofit organizations with religious objections to providing contraception coverage for plan years beginning before August 1, 2013. The proposed rule is the agencies’ latest attempt to balance access to these health care services and accommodation of organizations’ religious beliefs.

The Proposed Rule

Exemption for Religious Employers

The proposed rule simplifies the definition of a “religious employer” that is exempt from the contraceptive coverage requirement to mean any nonprofit entity referenced in Sections 6033(a)(3)(A)(i) or (iii) of the Internal Revenue Code.

Accommodation for Eligible Organizations

A separate accommodation will be established for group health plans sponsored by an “eligible organization,” defined as an organization that: (1) opposes providing coverage for some or all of any contraceptive services required to be covered on account of religious objections; (2) is organized and operates as a nonprofit entity; (3) holds itself out as a religious organization; and (4) self-certifies that it meets these criteria and specifies the contraceptive services for which it objects to providing coverage.

Contraceptive coverage will still be made available to women participating in group health plans sponsored by an “eligible organizations” on a no-cost basis.  The proposed rule will require health insurance issuers providing fully-insured coverage to group health plans sponsored by eligible organizations to enroll participants into separate individual health insurance policies that provide contraception coverage without cost sharing or additional premiums. For self-insured group health plans, the applicable TPA would arrange for the enrollment of participants into individual health insurance policies that provide contraception coverage without cost sharing or additional premiums, whether through voluntary enrollment, automatic enrollment or by the TPA becoming the plan administrator for this purpose.

HHS proposes to recognize contraception-only policies as a new category of “excepted benefit” coverage, although certain consumer protections, such as guaranteed renewability and annual/lifetime limit prohibitions, still would apply. 

The proposed rule anticipates that health insurance issuers would offset the cost of providing contraceptive coverage under individual policies issued to participants of self-funded group health plans by claiming a reduction to user fees imposed on issuers participating in Federally Facilitated Exchanges (FFEs).

Next Steps

  • Entities that may qualify for the “eligible organization” accommodation, including religious institutions of higher learning, will need to consider whether they can self-certify to this new status. They also will have to work with their insurer or TPA to address how coverage will be provided to participants.
  • The proposed rule raises numerous legal, financial and operational issues for health insurance issuers, including development of a new type of excepted benefit coverage, coordination of enrollment and benefits with self-funded group health plans, the cost of providing this coverage, and the potential risks associated with requesting a reduced FFE user fee based on costs relating to these new policies. 
  • TPAs will need to consider how they will arrange for contraception coverage to participants of self-funded plan customers that certify to being an eligible organization, a challenging process if different customers seek different approaches. TPAs also will have consider how to recover administrative costs from issuers issuing coverage policies (and receiving FFE reductions). An additional consideration is how to fund contraception coverage from the coverage effective date, September 1, 2013, until dollars become available in connection with the FFE user fees. 

Senate Finance Committee Leaders Release Comprehensive Report on Combating Waste, Fraud and Abuse in Medicare & Medicaid Programs

by Erica Stocker

On January 31, a group of six current and former members of the Senate Finance Committee—led by current Chairman Max Baucus (D-MT) and Ranking Member Orrin Hatch (R-UT)—released a comprehensive report detailing recommendations on combating waste, fraud and abuse in the Medicare and Medicaid programs. The report is a compilation of recommendations received from more than 160 health care industry stakeholders following a solicitation of such information in May 2012, and also includes proposals from the group of Senate Finance leaders themselves.

Senators Baucus and Hatch were joined by Senators Tom Coburn (R-OK), Ron Wyden (D-OR), Chuck Grassley (R-IA) and Tom Carper (D-DE) in soliciting the recommendations and releasing the report. In the coming months, this group of six intend to work not only within the Finance Committee—which has jurisdiction over Medicare and Medicaid—but also with other relevant Senate Committees, the Centers for Medicare and Medicaid Services (CMS), other appropriate federal agencies and interested stakeholders.

Specifically, the bipartisan report focuses on five key themes: improper payments; beneficiary protection; audit burden; data management; and enforcement. Several changes of note—some of which are within CMS’ authority to make and will not require legislation—include:

  • Increasing state Medicaid anti-fraud program funding;
  • Making changes to payment policies that tend to lead to waste, fraud and abuse due to inconsistent pricing;
  • Requiring the Centers for Medicare and Medicaid Services (CMS) to use currently un-utilized statutory authorities, such as mandatory compliance programs;
  • Making operational changes with regard to CMS audit contractors, in order to promote efficiency and effectiveness;
  • Clarifying appropriate settings for care (inpatient vs. outpatient, for example); and
  • Creating a balance between Medicare contractor incentives for identifying overpayments versus penalties when findings are overturned through appeals to CMS.

Upon the report’s release, Chairman Baucus noted that the Committee had received nearly 2,000 pages of input from stakeholders. “Now we must take these ideas and put them to work and strengthen Medicare and Medicaid, ensuring the programs continue to care for those they serve,” Baucus stated.

The Finance Committee press release with a link to the full PDF report can be found here.

As these recommendations advance, we can assist clients in expressing any ideas or concerns to relevant legislators and policymakers.

Medicare Shared Savings Program Final Rule: Where Do We Go from Here?

McDermott Will & Emery is pleased to provide this supplemental matrix to its original White Paper summarizing and evaluating the Centers for Medicare & Medicaid Services (CMS) proposed Medicare Shared Savings Program (MSSP) regulations.  As did the original White Paper, the matrix provides both a summary of, and commentary on, CMS’s recently published final regulations.  The matrix, which is intended to be read together with the original White Paper, “The Controversial Draft Medicare ACO Regulations: Analysis, Comments and Recommended Action,” includes page-by-page cross-references identifying changes between the Proposed Rule and the Final Rule, as well as McDermott commentary and recommended action items.  Readers should consult both the White Paper and the updated matrix when navigating through the Final Rule’s requirements.  We hope that you find this update and the original White Paper to be a useful and valuable resource and strategic planning tool as you evaluate your organization’s participation in the MSSP.  The authors and editors of these documents, as well as other McDermott lawyers with substantial experience and knowledge in the many issues raised by the MSSP, are available to respond to your questions and to facilitate your consideration and pursuit of shared savings programs.

For more information, please contact your regular McDermott Will & Emery lawyer or an editor: 

Gary Davis:  +1 305 347 6520

Contributing Editor:
Eric Zimmerman:  +1 202 756 8148

Click here to view the Supplemental Matrix in Adobe PDF format.

Please click here to view the original White Paper in Adobe PDF format.

House End of Year Package Would Cut Hospital Funding More than $17 billion

by Karen S. Sealander and Erika Stocker

As the clock ticks down on Congress’ 2011 session and lawmakers look to wrap up outstanding FY 2012 appropriations bills, leaders in both the House of Representatives and the Senate continue to look for a path forward on priority legislation to extend unemployment benefits, renew the expiring Social Security payroll tax cut and prevent a steep cut in Medicare physician reimbursements as part of a large year-end “extenders” package. 

House Republicans released their extenders package, HR 3630, late last week and are working to build support for the measure, with a vote expected early this week. This 369-page legislation would reduce Medicare payments to hospitals by more than $17 billion in order to finance other of the bill’s provisions. Highlights of the health-related provisions are set forth below and a more detailed summary of the health-related provisions can be found here

Should HR 3630 pass the House, it is expected to be soundly rejected in the Senate. Further, President Obama has already indicated his displeasure with certain of the bill’s provisions. As such, we believe that there are two options for an extenders package to make its way to the President’s desk for a signature: (1) House and Senate leaders will need to have an earnest negotiation to agree on a compromise that can pass muster in a Republican-led House, can garner 60 votes in the Democratically-controlled Senate and can avoid the veto pen of President Obama, or (2) the Senate will approve its own extenders package in the nature of a substitute to the House bill, which the House would have little choice but to accept.

Highlights of some of the health-related provisions are as follows:

Extenders and Other Changes

  • The bill heads off a 27.4 percent cut in Medicare physician payments, and provides that for CYs 2012 and 2013, physician payments would increase 1 percent in each year. The Congressional Budget Office (CBO) scores this provision as costing $38.9 billion over 10 years.
  • The bill would extend several expiring Medicare ambulance add-on payments, including a 2 percent adjustment for urban ground ambulance services, a 3 percent adjustment for rural ground ambulance services and the 22.6 percent increase for ambulance payments for trips originating in “super rural areas,” through December 31, 2012,. CBO scored this provision at $0.1 billion over 10 years.
  • The bill would extend with modifications a program that provides an exceptions process to outpatient therapy caps through December 31, 2013. CBO scored this provision at $1.7 billion over 10 years.
  • The bill would extend the physician fee schedule's work relative value units (RVU) geographic floor through December 31, 2012.  CBO scored this provision at $0.5 billion over 10 years.
  • The bill would re-open physician-hospital ownership restrictions imposed under the Affordable Care Act (ACA) to allow physician-owned hospitals that were under construction, but did not have Medicare provider numbers as of December 31, 2010, to open and operate and qualify for grandfather protection.  The bill also would make it significantly easier for hospitals that were grandfathered under the ACA provisions to expand capacity (presently, grandfathered hospitals are allowed to expand bed and OR capacity only if they meet very limited criteria). CBO scored this provision at $0.3 billion over 10 years.


 The bill utilizes a number of offsets, including several that come directly from hospital payments:

  • Reducing hospital outpatient prospective payment system (HOPPS) facility fee payments to hospitals for evaluation and management (E/M) services to be equal to the Medicare payment for the same service when furnished in a physician office. CBO estimates that this provision saves $6.8 billion over 10 years.
  • Reducing the reimbursement hospitals and other providers can receive for bad debts from 70 percent to 55 percent, phased in over 3 years.  CBO estimates that this provision saves $10.6 billion over 10 years. Of note, the President had proposed that the percentage be reduced to 25 percent.
  • Rebasing Medicaid disproportionate share hospital (DSH) payments.  CBO estimates that this provision saves $4.1 billion over 10 years.
  • Increase Medicare Part B and D premiums for high-income individuals by 15 percent, and increase the number of individuals considered to be high-income by lowering brackets from $85,000 for individuals to $80,000, and from $170,000 for couples to $160,000.  CBO estimates that this provision saves $31 billion over 10 years.
  • Reducing by $8 billion the Prevention and Public Health Fund created in the ACA.

Omitted Provisions

The bill is also noteworthy for what it does not include, including:

  • Sole community hospital and small rural hospital hold harmless or “TOPS” protections under the outpatient PPS, which will expire December 31, 2011.
  • Section 508 wage index reclassifications, which expired September 30, 2011.
  • Physician pathology technical component payments that allow independent laboratories to receive payments from Medicare for the technical component of pathology services performed for a hospital patient.
  • Reasonable cost payments for clinical laboratories in low density population areas, which expires July 2012.
  • The Medicare-dependent hospital designation program, which expires September 30, 2012.
  • Low-volume hospital payment adjustments, which expires September 30, 2012.

Obama Administration Asks Supreme Court to Take Up Health Reform Case

by J. Peter Rich and Webb Millsaps

The Obama Administration has asked the U.S. Supreme Court to consider the constitutionality of the individual mandate, a provision in the Affordable Care Act (ACA) that the Administration once referred to as the “linchpin” of the sweeping 2010 health reform law.   As we wrote previously, there are numerous challenges to the ACA that are in various stages of litigation, but the most significant case, Florida et al. v. United States Department of Health and Human Services et al. (Florida v. HHS), is the one that the Administration has petitioned the Supreme Court to review.

The challengers in Florida v. HHS, including 26 states, the National Federation of Independent Business and two individual citizens, originally were victorious in the U.S. District Court for the Northern District Court of Florida.  That decision by Judge Roger Vinson found that the individual mandate was unconstitutional and also found that the whole of the ACA must fail as a result because the individual mandate was not deemed severable from the rest of the law.  Judge Vinson’s decision was then upheld in part and reversed in part when the Eleventh Circuit Court of Appeals ruled August 12, 2011.  A three-judge panel of the Eleventh Circuit Court found, in a 2-1 decision, that the individual mandate is unconstitutional, but that it is severable from the remainder of the ACA and therefore that the rest of the health reform law should survive.

The Administration, which could have requested that the Eleventh Circuit re-hear the case en banc, filed their Petition for a Writ of Certiorari (the Petition) on September 27, 2011. By not pursuing the potential interim step of an en banc re-hearing the Administration has made it more likely that the Supreme Court will hear the case and make its ultimate ruling on the matter prior to the November 2012 election. Politically, this could be risky as some observers felt the Administration would not want to have a final decision by the Supreme Court come prior to the election. However, an en banc re-hearing would have carried some risk to the Administration since the Eleventh Circuit would have been free to fully affirm Judge Vinson’s original decision that if the individual mandate is unconstitutional then all of the ACA must be struck down.

The Petition argues that the Supreme Court should resolve the case because the decision by the Eleventh Circuit Court of Appeals “conflicts with a decision of the Sixth Circuit and involves a question of fundamental importance.” The Administration argues in the Petition that the decision by the Eleventh Circuit on the issue of the individual mandate is “fundamentally flawed and denies Congress the broad deference it is due in enacting laws to address the Nation’s most pressing economic problems and set tax policy.”

Pennsylvania Federal Judge Finds the Individual Mandate Unconstitutional and Strikes Down Closely Related Provisions

by J. Peter Rich and Webb Millsaps

On September 13, 2011, a federal district court judge in Pennsylvania ruled that the individual mandate under the Affordable Care Act (ACA) is unconstitutional and that certain provisions closely linked to the individual mandate must also be struck down.

Judge Christopher C. Connor’s decision differed from all of the prior judicial rulings on the question of severability, finding that certain provisions of the ACA which are closely tied to the individual mandate should fail as well, including provisions on guaranteed issuance of health insurance coverage irrespective of pre-existing conditions.  However, Judge Connor ruled that the bulk of the ACA should remain intact, notwithstanding the unconstitutionality of the individual mandate. In this regard, Judge Connor’s decision took a middle path between the previous two district court decisions that had found the individual mandate unconstitutional.  Judge Hudson in Virginia had struck down the individual mandate, but had ruled that all other provisions of the ACA could stand intact.  Judge Vinson in Florida had struck down the individual mandate and had ruled that the entirety of the ACA must fail.

Six federal district courts have now ruled on the constitutionality of the individual mandate: three finding it constitutional and three finding it unconstitutional (two of those decisions, one on each side of the scorecard, were vacated last week by the Fourth Circuit Court of Appeals).  Aside from those six courts, other federal district courts have also ruled in cases involving challenges to the ACA, but those rulings have been on legal grounds not related to the constitutional questions, such as whether the challengers have standing.

Three federal circuit courts of appeals have now considered lower court decisions on the individual mandate.  The Eleventh Circuit Court of Appeals in Atlanta, reviewing Judge Vinson’s opinion, found the individual mandate to be unconstitutional, but overturned Judge Vinson on the severability issue, ruling that the remainder of the ACA should not be struck down.  The Sixth Circuit Court of Appeals in Cincinnati upheld a lower court decision that found the individual mandate to be constitutional.  Last week, on September 8, 2011, the Fourth Circuit Court of Appeals in Richmond vacated two federal district court decisions, finding that the judges did not have standing to reach their decisions (for legal reasons related to standing of the challengers and ripeness of the injuries).  Separately, briefs have been filed in another case which is before the Circuit Court of Appeals for the District of Columbia.

There are approximately 30 cases involving challenges to the ACA that are in various stages of litigation.  Due to the circuit split between the Eleventh Circuit and Sixth Circuit, the U.S. Supreme Court will ultimately resolve the issues of the individual mandate and its severability from other provisions of the ACA.

Eleventh Circuit Strikes the ACA's Individual Mandate as Unconstitutional, Setting Up a Circuit Split and Making Supreme Court Review More Likely

by Webb Millsaps and J. Peter Rich

In a 2-1 decision on August 12, 2011, the Eleventh Circuit Court of Appeals in Atlanta ruled that the individual mandate in the Affordable Care Act (the ACA) is unconstitutional. (See opinion.) In a reversal from the original federal district court decision on appeal, however, the circuit court found that the individual mandate was severable from the remainder of the ACA, and therefore concluded that the remaining parts of the ACA should stand.

By contrast, in the original district court opinion, Judge Roger Vinson, after noting that the individual mandate had been referred to as the “linchpin” of the ACA by the President and others, found that the whole of the ACA was not severable from the individual mandate, and that since the individual mandate was unconstitutional the entire ACA must be struck down.

While the Eleventh Circuit found that the “district court placed undue emphasis on the [ACA’s] lack of a severability clause,” it did acknowledge the closeness of the severability question, particularly with regard to two reforms under the ACA: guaranteed issue health insurance, 42 U.S.C. § 300gg-1 (effective January 1, 2014) and the prohibition on preexisting condition exclusions, id. § 300gg-3.

The Eleventh Circuit Court’s opinion is of significant interest to stakeholders for a variety of reasons. Importantly, this decision sets up a circuit split (the 6th Circuit in Atlanta previously upheld the constitutionality of the individual mandate in a 2-1 decision), which means that Supreme Court review is virtually inevitable. Further, this decision marks the first time that a judge appointed by a democrat ruled against the Obama Administration on the constitutionality of any aspect of the ACA. In addition, the Eleventh Circuit case has been regarded as perhaps the most significant legal challenge to the ACA, in part because the challengers include 26 states, as well as the National Federation of Independent Business. In related ACA legal action, the Fourth Circuit has yet to rule in two other pending challenges.

The Obama Administration has 90 days from August 12, 2011, to decide if it wishes to request an en banc re-hearing before the full Eleventh Circuit Court of Appeals or instead appeal the decision directly to the Supreme Court. The Administration’s decision will likely involve legal and political considerations. In an en banc re-hearing, there is a potential legal risk that the full Eleventh Circuit could affirm the unconstitutionality of the individual mandate, but reverse the panel on the severability issue. Alternatively, if the case moves more swiftly to the Supreme Court and the Court agrees to take up the ACA challenge in the term that begins in October 2011, then a decision would be expected no later than June 2012, a scant five months before the presidential election. From a political perspective, an en banc re-hearing could delay a final Supreme Court decision on health care reform until after the November 2012 election. However, even if requested by the Administration, an en banc re-hearing is not guaranteed because en banc re-hearings are disfavored under federal court rules and the Eleventh Circuit could only order an en banc re-hearing if a majority of all the eligible Eleventh Circuit Judges agree to hear it. 

Meanwhile, President Obama has expressed confidence that the ACA will be upheld and the Administration is continuing to press ahead with implementation of its provisions.

Webcast: Strategies to Deal with the Patient Protection & Affordable Care Act

Live Knowledge Congress Webcast
Strategies to Deal with the Patient Protection & Affordable Care Act
September 13, 2011, Noon to 2 pm (EST)

Panel includes Susan Nash, Co-Chair of McDermott Will & Emery’s Health and Welfare Benefits Group.

The Patient Protection & Affordable Care Act (PPACA or “Health Reform Bill”) has been the subject of significant legal and policy debate since it was enacted in April 2010.  The legislation has been both hailed as an important victory in the battle to improve the quality and accessibility of healthcare in the United States, and challenged as unconstitutional and ineffective in reducing medical costs and otherwise incenting choice and value in medical care and services.

Amidst this debate, legal and business strategies for dealing with the aspects of Health Reform that have been, or soon will be, implemented are often left in the background.  These strategies are critical for ensuring compliance and optimizing business performance as PPACA rolls out. No matter how the broader policy or legal debate resolves, entities affected by PPACA must consider the Act’s impact on reimbursement, cost protection, and other day-to-day operational issues.

Strategies to Deal with the Patient Protection & Afford Care Act  LIVE Webcast is a must-attend for healthcare professionals, health policy directors, health executives, pharmaceutical and medical device manufacturers and others who are interested in developing practical strategies to deal with healthcare reform.  The Knowledge Group has assembled a panel of key thought leaders and regulators to discuss the fundamentals and updates regarding this topic.

Click here to register for the event.

To receive a discount courtesy of McDermott Will & Emery, please enter this code: will8992.

Providing Accountable Care: Strategy & Structure Webcast Materials

McDermott hosted a series of five complimentary webcasts focused on providing  practical, can-do commentary and stimulating dialogue regarding the provision of “accountable care” and the formation of accountable care organizations (ACOs), including electronic health information, governance, management and provider alignment.   

View archived webcasts and presentations

April 14, 2011: So You Want to Partner with CMS … Practical Considerations for Medicare ACOs Webcast | Materials

March 29, 2011: Payment, At-risk Arrangements and Funds Flow Models Webcast | Materials

March 15, 2011: Payor Perspectives on Provider Realignment and ACOs Webcast | Materials

March 1, 2011: Regulatory Hurdles, Best Practices, Evidenced Based-Medicine and the Evolution of Clinical Care Webcast | Materials

February 15, 2011: Use of Information, Governance, Management and Provider Alignment Issues Webcast | Materials

Letter From Twenty-One GOP Governors Emphasizes Uncertainty of ACA's Future While Also Seeking Targeted Modifications That Would Improve ACA

On February 7, 2011, Republican Governors sent a letter to Secretary of Health and Human Services (HHS), Kathleen Sebelius, emphasizing that the future of the Affordable Care Act (ACA) is uncertain and suggesting a short of list of “improvements” to ACA.   On January 31, 2011, a Florida court ruling in favor of twenty-six states found that ACA’s “individual mandate” (IM) and in turn the whole of ACA is unconstitutional.  The case will almost certainly reach and ultimately be decided by the U.S. Supreme Court. 

The Governors’ letter says that the States now “face the decision of whether to participate in [ACA] by operating state [insurance] exchanges, or to let the federal government take on that task,” even though the States cannot know at present whether ACA will be in force in 2014.  Although the IM does not take effect until 2014, the ACA requires states to establish insurance exchanges ready to operate January 1, 2014.  If a state does not set up its own insurance exchange, the Federal government must step in and set up an exchange in that state, which could occur in 2012 or earlier.  As a result, states cannot wait to see what happens with the litigation concerning the constitutional questions.  ACA provides that HHS can set up and operate an exchange in any state that “the Secretary determines on or before January 1, 2013” will not be able to meet the 2014 deadline for setting up its own exchange.

Although the Governors' express “grave concerns” about ACA and note their belief that it contains “constitutional infringements,” the letter nonetheless urges the following targeted ACA modifications:

  • Provide states with complete flexibility on operating the exchange, most importantly the freedom to decide which licensed insurers are permitted to offer their products
  • Waive the bill’s costly mandates and grant states the authority to choose benefit rules that meet the specific needs of their citizens.
  • Waive the provisions that discriminate against consumer-driven health plans, such as health savings accounts.
  • Provide blanket discretion to individual states if they chose to move non-disabled Medicaid beneficiaries into the exchanges for their insurance coverage without the need of further HHS approval.
  • Deliver a comprehensive plan for verifying incomes and subsidy amounts for exchange participants that is not an unfunded mandate but rather fully funded by the federal government and is certified as workable by an independent auditor.
  • Commission a new and objective assessment of how many people will end up in the exchanges and on Medicaid in every state as a result of the legislation (including those “offloaded” by employers), and at what potential cost to state governments. The study should be conducted by a neutral third-party research organization approved by the signatory states.

Florida Federal Court Rules Health Reform Law Unconstitutional; Implementation Continues; Challenges Inevitably Headed for Supreme Court Resolution

On Monday, January 17, 2011, a U.S. District Court in Florida found the Patient Protection and Affordable Care Act (PPACA) to be unconstitutional, virtually assuring that the Supreme Court will resolve the question of PPACA’s constitutionality.  The opinion, written by Reagan appointee Judge Roger Vinson, states that the federal government does not have the constitutional authority to impose the “individual mandate” (IM) on citizens.  Vinson also concludes that the IM, found in Section 1501 of PPACA, is not severable from the rest of PPACA and that consequently PPACA is unconstitutional as a whole. 

On December 14, 2010, a federal judge in Virginia reached the same conclusion as the Florida federal court regarding the unconstitutionality of the IM. In that opinion, however, Judge Henry Hudson ruled that the IM was severable from PPACA’s other provisions, except for provisions which were “directly dependent” on the IM and which make specific reference to Section 1501 of PPACA.  Prior to the Virginia and Florida decisions striking down the IM, two other federal district court judges (a decision in Virginia and a decision in Michigan) had reached the opposite conclusion and determined that the federal government does, in fact, have the constitutional power to impose the IM.

The Florida opinion states that the case is “not really about the health care system at all,” but rather “principally about the federalist system” and the role of the federal government.  It is established that individual states generally have the authority to pass laws compelling people to purchase insurance (depending on state constitutional provisions), as is the case in Massachusetts. 

The federal government has a relatively short list of “enumerated powers” under the U.S. Constitution, many of which grant particularized authority under the Constitution for the federal government to enact laws in those specific areas (e.g. the power to coin money, establish an army and navy, establish a post office, or declare war).  As is the case with most federal laws, there is no specific, enumerated power authorizing Congress to enact the IM and so the authority for Congress to legitimately enact the IM only exists if the IM is deemed grounded in one of Congress’s broader constitutional powers, such as the power to tax and spend or to regulate interstate commerce.

All four federal courts that have issued an opinion to date have reached the conclusion that the IM is not a tax and therefore would not be constitutionally justified under the federal government’s taxation authority.  Both Judge Vinson in Florida and Judge Hudson in Virginia found that the IM could also not be justified under the commerce clause (i.e. the grant of authority to regulate interstate commerce). 

Noting that for the first century of the country’s history the commerce clause was “seldom invoked by Congress” as a basis for law-making authority, Judge Vinson writes that “everything changed in 1937” beginning with three significant new deal cases in which the Supreme Court took a more expansive view of the power granted to the federal government under the commerce clause.  Despite the generally expanded view of the commerce clause over the past 70 years, Vinson found that it would be “a radical departure from existing case law to hold that Congress can regulate inactivity [i.e. an individual’s decision to not purchase health insurance] under the commerce clause.”  In concluding that that the IM could not be severed from health reform as a whole, Judge Vinson noted that the IM is “indisputably necessary to [the health reform law’s] insurance market reforms, which are in turn, indisputably necessary to the purposes of the [health reform law].”

The Justice Department is expected to appeal the ruling.  Meanwhile, CMS and HHS will continue the process of promulgating regulations in keeping with the implementation timelines under PPACA.  Initial reaction from the states is mixed, with some states indicating they will proceed with implementation and other states indicating they plan to scale back or discontinue their implementation efforts.  Virginia’s Attorney General, Ken Cucinelli, issued a press release January 26, saying that at present “there is a great deal of uncertainty for states, individuals, and businesses” and expressing concern that “decisions are already being made and money is already being spent to comply with a law that may not be around two years from now.” 

In other court action, in late January, the Fourth Circuit Court of Appeals granted a motion to expedite a review of Judge Hudson’s decision and will likely schedule a hearing in May 2011, but Cuccinelli announced today, February 3, that Virginia will request that the Supreme Court take the case directly and skip the Circuit Court review entirely.  Cuccinelli said “we need this suit resolved as quickly as possible, for the good of our citizens and our economy.”  The issues of the constitutionality of the IM and whether or not the IM is severable from PPACA’s numerous other provisions will likely ultimately be settled by the Supreme Court. 

Meanwhile, on February 2,  the Senate defeated a procedural motion 47-51 on a Republican effort to repeal PPACA thus blocking Republican efforts led by Senate Minority Leader Mitch McConnell (R-KY) to repeal the health reform law.  It is clear that during the lead-up to the November 2012 elections, we will see continued efforts to thwart implementation of the health reform law. 

CMS Proposes Rule to Pay Hospitals For Delivering Quality Care to Inpatients

Today, January 13, 2011, the Centers for Medicare & Medicaid Services (CMS) published a proposed rule that would reward hospitals for providing safe and high quality patient care.  The proposed rule, required under Section 3001 of the Patient Protection and Affordable Care Act, would provide higher payments to hospitals that perform well on certain quality measures relating to both clinical process and patient experience of care.  The head of CMS, Donald Berwick, says the proposed rule would constitute “a huge leap forward in improving the quality and safety of America’s hospitals for both Medicare beneficiaries and all Americans.”

This program, known as the hospital inpatient value-based purchasing program, would apply to Medicare payments under the Inpatient Prospective Payment System (IPPS) for inpatient stays in more than 3,000 acute care hospitals beginning in FY 2013 and applicable to payments for discharges occurring on or after October 1, 2012.  The incentive payments to acute care hospitals would be based either on how well a hospital performs on certain quality measures or, alternatively, how much a hospital’s performance improves on certain quality measures from their performance during a baseline period.  The higher a hospital’s performance or improvement during the performance period for a fiscal year, the higher the hospital’s value-based incentive payment for the fiscal year would be.

Since 2004, CMS has collected quality and patient experience data from acute care hospitals on a voluntary basis under the Hospital Inpatient Quality Reporting (IQR) Program.  The vast majority of hospitals now choose to participate in the IQR program in order to be eligible for the full annual percentage increase in reimbursements each year, as a result of legislation requiring Medicare to reduce the annual percentage increase for hospitals that did not participate in the reporting program.  Data regarding hospital performance can be found on the Hospital Compare website.

The hospital value-based purchasing program goes further than the IQR program by offering incentives to hospitals not just for reporting data, but also based on positive quality performance as demonstrated by the data.  According to Berwick, “Value-based purchasing repositions Medicare from an observer of nationwide hospital quality to a formidable force in shaping quality going forward.”

CMS will accept comments on the proposed rule until March 8, 2011, and will respond to them in a final rule to be issued next year. In commenting, stakeholders should reference file code CMS–3239–P.  Comments to CMS may be provided electronically here.  Alternatively, comments may be provided by mail, overnight delivery or by hand/courier at the addresses set forth in the proposed rule.

To read the CMS Fact Sheet on hospital inpatient value-based purchasing program, click here.

To read the hospital inpatient value-based purchasing program in the Federal Register, click here.

GOP Introduces Bill to Repeal Health Reform; Cabinet Letter To Congress Supports Health Care Law; CBO Estimates Cost of Repeal

On January 5, 2011, GOP Members of the House of Representatives introduced legislation entitled “Repealing the Job-Killing Health Care Law” (HR 2) and three cabinet Secretaries, including the Secretary of Health and Human Services (HHS), sent a letter to Members of Congress emphasizing the merits of the Affordable Care Act (ACA).  An HHS press release that accompanied the Secretaries’ letter stated that its purpose was to provide an “update on implementation” of ACA and discuss how ACA will “continue to give Americans more freedom in their health care choices” as the implementation of health reform unfolds during 2011. 

The legislation and the letter came as the 112th Congress convened with Republicans taking control of the House of Representatives.  The Secretaries’ letter acknowledges that the repeal of ACA has been “proposed by some,” but urges Congress to stay the course after considering all that ACA has “already done to improve the health and financial security” of many Americans.

Then, on January 6, 2011, the Congressional Budget Office (CBO) weighed in with its own letter to the House of Representatives about HR 2.  While the CBO letter states that the CBO has “not yet developed a detailed estimate of the budgetary impact of repealing” ACA, it nevertheless suggests that HR 2 would “probably increase federal budget deficits” over the eight year period from 2012–2019 by “a total of roughly $145 billion.”  According to the CBO letter, approximately $15 billion of that total represents the reduction brought about by the Medicare and Medicaid Extenders Act of 2010 (MMEA) in the estimated cost of subsidies to be provided through the insurance exchanges (see the McDermott White Paper on the MMEA).

Majority Leader Eric Cantor (R-VA), the sponsor of HR 2, stated earlier that in estimating the savings and costs of ACA the “CBO [only] did the job it was asked to do by the Democratic majority” at the time and that, as a result, the passage of health reform was “filled with budget gimmickry.”  The CBO letter acknowledges that “projections of [HR 2’s] budgetary impact are quite uncertain,” but that the CBO believes its estimates of the net budgetary effects “have a roughly equal chance of turning out to be too high or too low.”

The seven-page letter from the Cabinet Secretaries contains the following “highlights” from ACA and emphasizes some of the controversial as well as non-controversial provisions in the law:

  • State-based Insurance Exchanges.  These are to be operational in 2014 and according to the letter could potentially reduce premiums by 14 to 20 percent for currently insured individuals versus rates such individuals might otherwise pay for insurance. 
  • Medical Loss Ratio Rules For Insurance Companies.  Insurers are required to spend at least 80 to 85 percent of insurance premium dollars on health care and “quality improvement.”
  • Closed Donut Hole.  In 2010, nearly 3 million senior citizens received rebate checks of $250 each to help pay for prescription drugs.
  • Pre-Existing Conditions.  Children under age 19 cannot be denied insurance coverage due to a pre-existing condition.  Young adults up to age 26 are able to stay on their parents insurance.

To review the complete Secretaries’ letter, click here, and for the CBO letter, here.

NAIC approves "Model Act" for State Insurance Exchanges

On Friday, December 17, 2010, the National Association of Insurance Commissioners (NAIC) approved a model law for state insurance exchanges. Each state is required under Patient Protection and Affordable Care Act (PPACA) to establish an “American Health Benefit Exchange” by January 1, 2014. 

The NAIC’s American Health Benefit Exchange Model Act provides a basic statutory framework designed to comply with PPACA’s mandates. PPACA has two basic categories of requirements for these state exchanges: (1) minimum functions that the exchanges must undertake, and (2) oversight responsibilities that exchanges must exercise in certifying and monitoring the performance of “quality health plans” (QHPs).

The exchanges are supposed to help individuals obtain QHPs and help small group employers to obtain coverage for employees. According to the Model Act, the “intent of the Exchange is to reduce the number of uninsured, provide a transparent marketplace and consumer education and assist individuals with access to programs, premium assistance tax credits and cost-sharing reductions.”

It is widely understood that states will need plenty of lead time to properly plan and implement exchanges.  Further, PPACA provides that the Secretary can set up and operate an exchange in any state if “the Secretary determines on or before January 1, 2013” that a state will not be able to meet the 2014 deadline.  The U.S. Department of Health and Human Services (HHS) published its first guidance on state insurance exchanges on November 18, 2010.  The first Notice of Proposed Rulemaking for federal regulation governing the state exchanges will be published in early 2011. 

Even states that have joined in court challenges to PPACA have indicated they are moving forward to plan for the insurance exchanges.  In September 2010, forty-eight states and the District of Columbia were awarded their first grants from the federal government under PPACA to be used for planning the implementation of exchanges.  Additional grants to states are available in 2011, but states will have to meet certain milestones in order to be awarded more grants. 

Upcoming CMS Regional Listening Sessions on ACOs, CMMI and Health Reform

Next week CMS is continuing to hold sessions in its series of regional listening sessions on the subject of “Health Care Delivery System Reform.”

The stated purpose of the listening sessions is to highlight CMS’s reform efforts and also to gain input from stakeholders. CMS organized the regional sessions stating that the Affordable Care Act (ACA) has given it new opportunities to improve the care delivery and payment system, including Accountable Care Organizations (ACOs) under the ACA’s Shared Savings Program. (For information on a prior CMS listening session regarding ACO waivers under the Shared Savings program read McDermott’s On the Subject here.)

Each listening session throughout the country, will spotlight these three areas:

  • Shared Savings Program for ACOs
  • Center for Medicare and Medicaid Innovation (CMMI)
  • Federal Coordinated Health Care Office (FCHCO)

Some of the upcoming listening sessions may be attended via call in numbers.  Other listening sessions are only open for in-person attendance and subject to advanced registration.  The following is the schedule of listening sessions to be held next week according to the CMMI calendar and circulars provided by the Division of Partner Relations at CMS:

Monday, December 13, 2010
Event: Region 10 Listening Session
Time: 12:00 - 2:00 pm PST
Hosts/Panel: Co-hosted by HHS Regional Director Susan Johnson and CMS Regional Administrator John Hammarlund. Dr. Don Berwick, CMS Administrator, will provide opening remarks and Dr. Richard Gilfillan, Acting Director of the CMMI will solicit ideas and feedback from attendees.
Call in Information (if any): None. In person attendance only. Subject to availability, register here.
Location:  Hilton Seattle Airport and Conference Center, 17620 International Blvd, Emerald Ball Room, Seattle, WA 98188

Tuesday, December 14, 2010
Event: CMS Region 2 Listening Session
Time: 2:30 - 4:00 pm EST
Hosts/Panel: Co-hosted by CMS Consortium Administrator James T. Kerr and DHHS Regional Director Dr. Jaime Torres, featuring Dr. Rick Gilfillan, Acting Director, CMMI and Cheryl Powell, Deputy Director for the FCHCO.
Call in Information (if any): +1 800 837 1935; ID Code: 28948644

Thursday, December 16, 2010
Event: Region 4 CMS Listening Session
Time: 1:00 - 2:30 pm EST
Hosts/Panel: Hosted by CMS Regional Administrator, Dr. Renard Murray, featuring Dr. Richard Gilfillan Acting Director, CMMI, and Sharon Donovan, FCHCO; and including Anton Gunn, HHS Regional Director.
Call in Information (if any): +1 800 837 1935; ID Code: 28950540

Friday, December 17, 2010
Event:  Listening Session (last currently scheduled in the series)
Time: 9:30 - 11:30 am CST
Hosts/Panel: Hosted by Dr. Renard Murray, Ph.D., CMS Regional Administrator and featuring Dr. Richard Gilfillan, M.D, Acting Director, CMMI.
Call in Information (if any): None.  In person attendance only. Those interested in attending must register here no later than close of business Wednesday, December 15, 2010.
Location:  Richardson Civic Center, 411 W. Arapaho Road, Ste. 102, Richardson, TX 75080
Questions: CMMI’s website states that questions regarding this session may be directed to the voicemail box at +1 303 844 7130.

Some details of each event are available on the website for CMMI.

A calendar showing the various regional sessions also is on CMMI website.

Significant Health Reform Ideas: Fiscal Commission Report May Impact Health Policy

The President’s Fiscal Commission Report contains significant recommendations for health care policy that could yet influence policymakers. On December 3, 2010 the Report failed to get the affirmative vote of 14 of the 18 members of the Commission. That may have marked a fork in the road, but is unlikely the end of it. The Report says health care spending “represents our single largest fiscal challenge in the long run” and it offers six recommendations for health policy that policymakers may find appealing.

One recommendation involves actions that CMS can take under the Affordable Care Act (ACA) “without any further congressional action.”  CMS should implement new pilot and demonstration projects “aggressively” and “as rapidly as possible.” The Commission believes that “there could be substantial savings in Medicare, Medicaid, CHIP, and other health programs” if successful pilots are aggressively implemented. 

We note that one idea in the Report, the introduction of “downside risk” to Accountable Care Organizations (ACOs) under the ACA, is already gaining momentum as MedPAC recently recommended that CMS introduce this concept to ACOs.  (For more information, see the On the Subject about MedPAC's comments to CMS.)

The Report also urges the following measures:

  • Eliminate the carve out for hospitals and other providers that are currently exempt from changes in Medicare payment policies established by the ACA’s Independent Payment Advisory Board.
  • Reform the Sustainable Growth Rate (SGR), known as the “doc fix,” by implementing a three-year freeze at current reimbursement rates followed by a 1 percent cut in 2014, then reinstatement of the SGR in 2015.
  • Modify Medicare cost-sharing rules. First, introduce an annual deductible of $550 per beneficiary with coinsurance thereafter until the beneficiary reaches a maximum annual out-of-pocket of $7,500. Second, restrict “first dollar” Medicare supplement insurance, which cause over-utilization of health services.
  • Establish a long-term global budget for federal health care spending.
  • Eliminate the CLASS Act, which is “viewed by experts as financially unsound.”         

The Report can be found on the Commission’s website at

CMS Creates Permanent Open Enrollment Period for High-Quality MA Plans

As part of its continued efforts to incentivize Medicare Advantage (MA) Organizations to achieve a 5-star quality rating, the Centers for Medicare and Medicaid Services (CMS) announced the creation of a special enrollment period (SEP) to permit enrollment into 5-star rated MA Plans at any time during the benefit year.

The SEP will be available beginning in calendar year (CY) 2012 to all Medicare beneficiaries who:

1)  Are enrolled in an MA Plan with a quality rating of 4.5 stars or less, or enrolled in traditional Medicare fee-for-service and eligible to enroll in an MA Plan, and
2)  Reside in the service area of a 5-star rated MA Plan. 

MA Plans with a quality rating of 4.5 stars or less seem to be limited to enrolling Medicare beneficiaries during the annual election period or a beneficiary’s initial enrollment period or another SEP.  Thus, in addition to competing for new members with 5-star MA Plans in the same service area, MA Plans with a 4.5-star or less rating will be vulnerable to potentially losing members during the year.

A copy of the Health Plan Management System (HPMS) memo regarding the SEP can be found here.  Additional guidance on this SEP is expected in the CY 2012 Call Letter. 

What This Means
This new SEP is one of several benefits for 5-star MA Plans in CY 2012, in addition to higher quality bonus payments and enhanced access to MA rebate dollars.  All MA Organizations, and particularly those serving areas in which other 5-star MA Plans are operating, need to be identifying and implementing changes to enhance their quality rating. 

Next Steps
CY 2012 star ratings, issued in Fall 2010, are based on data collected in 2009 and 2010.  Thus, MA Organizations should focus on quality improvement activities that will positively impact 2011 data elements, and thus CY 2013 and CY 2014 star-quality ratings, such as provider-driven elements and other beneficiary “touch points” evaluated under the surveys that contribute to star-quality ratings

Centers for Medicare and Medicaid Services Issues Proposed Changes to Medicare Graduate Medical Education Payments

The U.S. Department of Health and Human Services (HHS), Centers for Medicare and Medicaid Services (CMS) has released proposed changes to the Medicare Outpatient Hospital Prospective Payment System (OPPS), including several proposed changes to Medicare Graduate Medical Education (GME) payments.  Hospitals with existing GME programs, those that are contemplating new or expanded GME programs, and those considering closure of programs or sale or acquisition of a hospital should carefully review the proposed regulations to evaluate the effect of the proposed changes and consider submitting comments to CMS before August 31, 2010. 

Click here to view the full article.

First-Dollar Coverage of Designated Preventive Services

The Facts

Health care reform requires non-grandfathered group health plans and health insurance coverage to provide first-dollar coverage of certain preventive services furnished by in-network providers.  This requirement is effective with the first day of the first plan / policy year beginning on or after September 23, 2010.

Coverage is mandatory for four general categories of preventive services, referred to as recommended preventive services.  The U.S. Department of Health and Human Services (HHS) will maintain a complete and up-to-date list of recommended preventive services on its website

Coverage is not required for recommended preventive services furnished by out-of-network providers, and cost-sharing obligations also may imposed.  HHS also has adopted regulations addressing cost-sharing requirements for office visits (and other health care services) furnished at the same time as a recommended preventive service.

What’s at Stake

Group health plans and health insurance issuers offering non-grandfathered plans and policies need to evaluate their plans / policies to assess whether changes are needed, both to comply with this new coverage mandate and to promote in-network provider utilization.

Steps to Consider

Medical management techniques to administer benefits for recommended preventive services are permitted, and group health plans and health insurance issuers will want to consider what techniques may be appropriate.  An additional consideration is whether the claims submission and payment provisions need to be modified to implement the cost-sharing regulations for office visits and other health care services provided at the same time as recommended preventive services.

President Obama Appoints Don Berwick to Lead CMS

On July 7, 2010, in a recess appointment, President Obama appointed Don Berwick, M.D., M.P.P., to lead the Centers for Medicare and Medicaid Services (CMS).  Dr. Berwick is a pediatrician, Harvard professor, and president and chief executive officer of the Institute for Healthcare Improvement.  As administrator of CMS, Dr. Berwick will play a pivotal role in the implementation of health reform legislation. 

The president's use of his recess appointment power obviates the traditional U.S. Senate confirmation process, which would have included a confirmation hearing at the U.S. Senate Committee on Finance (Finance Committee), at which legislators could ask questions of the nominee, and, if the Finance Committee reported the nomination, a subsequent Senate floor vote which would have provided all Senators an opportunity to discuss the nominees' record and vote for or against his confirmation.  The recess appointment avoids what would likely have been an extremely partisan and drawn out confirmation battle.  Indeed, congressional Republicans—with an eye toward the rapidly approaching November 2010 congressional elections—seemed bent on using the Berwick confirmation process as a referendum on health reform legislation.  While the recess appointment effectively installs Dr. Berwick at CMS without Senate confirmation, a recess appointment lasts only as long as the current Congress, which extends through 2011.  This means that, in order to serve beyond 2011, Dr. Berwick would need Senate confirmation in 2012, or another recess appointment. 

To learn more about Dr. Berwick's background and extensive experience, see McDermott's previous blog post.

Concern about the recess appointment was not confined to the Republican side of the aisle.  Both Senator Max Baucus (D-MT), chairman of the Finance Committee, and Senator Charles Grassley (R-IA), the ranking Republican on the Finance Committee, expressed dismay.  Senator Baucus said he was “troubled that, rather than going through the standard nomination process, Dr. Berwick was recess appointed.  Senate confirmation of presidential appointees is an essential process prescribed by the Constitution that serves as a check on executive power….by ensuring that crucial questions are asked of the nominee – and answered.”  Senator Grassley protested the recess appointment as well, saying, “The administration has taken advantage of the fact that there's no check on its power, with one-party control of Congress and the White House.”  He continued, “This recess appointment follows a pattern.  Health care legislation was written behind closed doors.  Broad new regulations have been written within the bureaucracy and issued without any public comment period.  It really flies in the face of the President's pledge to have the most transparent administration ever.” 

Despite the controversy regarding the appointment, Dr. Berwick does enjoy support from past CMS administrators, including those appointed by both Democratic and Republican administrations.  He also receives support from numerous providers and other organizations, and he has a long history of working to improve both the quality and efficiency of health care—one of the principal aims of health reform legislation. 

Health Insurers and Health Care Reform Implementation: What, When, and, Most Importantly, How?

The Facts

Health insurance issuers face immediate deadlines as well as long-term timeframes for implementing health care reform.  Several initiatives are underway, such as the Early Retiree Reinsurance Program. Other market reforms, including lifetime and annual dollar limit restrictions, apply to new issues and renewals beginning September 23, 2010, although limited exceptions may exist for grandfathered plans.

Quickly following are federal review of premium rate increases and medical loss ratio (MLR) standards (along with the risk of mandatory rebates if exceeded).  Multiple, and differing, statutory provisions, such as the small groups definitions, add complexities.

What’s at Stake

Implementing these reforms raises several common questions and issues:

  • How do health insurance issuers modify existing products and prepare state product and rate filings to reflect new benefit requirements that are vague or undefined and for which guidance may not yet exist?
  • How should health insurance issuers advise their customers?  Should grandfathered status be preserved, or will the conditions be too limiting to be practical?  The answer may differ for self-funded and fully insured plans.
  • How do health insurance issuers implement new operating requirements, such as MLR standards, where state filings will need to be prepared prior to adoption of the standards?  How should existing small group requirements be reconciled with new definitions for small groups?

Steps to Consider

In addition to monitoring the release of regulations and other guidance, health insurance issuers should consider strategies for implementing reforms for which there is minimal guidance.  Consistency as to approach, coupled with a good faith defense of actions taken following critical legal analysis, may mitigate some of the potential risks.  Developing a schedule for immediate requirements is advisable, while keeping in mind the longer-term reforms that take effect upon launch of health insurance exchanges.

President to Nominate Don Berwick to Head CMS

The Facts

President Obama is reportedly poised to nominate Don Berwick, M.D., M.P.P., to head the Centers for Medicare & Medicaid Services (CMS).  Since 2006, when Dr. Mark McClellan left, CMS has been without a permanent administrator. 

Berwick is the current president and CEO of the Institute for Healthcare Improvement, a Cambridge, Massachusetts, organization that seeks to improve health care by "building the will for change, cultivating promising concepts for improving patient care, and helping health care systems put those ideas into action."  In its work, the institute seeks to "accelerate the measurable and continual progress of health care systems."  For more information about the institute, visit  Berwick is also a clinical professor of pediatrics at Harvard Medical School and a professor of health care policy at the Harvard School of Public Health.  Berwick served as vice-chair of the U.S. Preventive Services Task Force, and chair of the National Advisory Council of the Agency for Healthcare Research and Quality.  He also served two terms on the Institute of Medicine’s governing council.

Berwick would have the difficult job of managing and improving Medicare, Medicaid and the Children's Health Insurance Program, while simultaneously implementing much of the recently enacted health reform legislation.  While Medicare currently covers 46 million Americans, Medicaid currently covers 43.5 million Americans and is slated to expand to cover an additional 16 million individuals through expanded eligibility in health reform legislation.  However, in light of Berwick’s vast experience in the area of health quality improvement, he seems well-positioned to lead CMS as the agency positions itself to increasingly focus on paying for value as opposed to volume.

What’s at Stake

As the new head of the largest medical payer in the nation, Berwick’s leadership and decisions would significantly affect almost everyone in the health care sector.  With the enactment of health reform legislation, implementation is the primary focus of the Obama administration.  Berwick would have a vital role in determining how this reform is rolled out and ensuring that this reform meets U.S. Department of Health and Human Services Secretary Kathleen Sebelius’s goal of HHS becoming “the face of competent government — the face of a help desk that can really respond to personal issues and questions.”

Steps to Consider

The post of CMS administrator requires U.S. Senate confirmation, a process that may reignite the deep political and philosophical divisions about the newly passed health reform legislation.  Thus, all in the health care sector should monitor the nomination and Senate confirmation process.

Health Insurance Exchanges - National Versus State-Level Marketplace

The Facts 

Both the House health reform bill, H.R. 3962 (Affordable Health Care for America Act), and the Senate health reform bill, H.R. 3590 (Patient Protection and Affordable Care Act), include provisions establishing one or more health insurance marketplaces (exchanges). The exchanges would serve as an organized and transparent marketplace designed to facilitate access to, evaluation of and purchase of qualified health insurance plans by individuals and small businesses. Premium subsidies would be available through the exchange, and benefit packages would be structured in standardized tiers. An exchange would seek to create a large enough risk pool so that competition among insurers would increase not only with respect to pricing but on quality and service aspects as well. Insurance market reforms in both bills would disallow preexisting condition exclusions and impose medical loss ratio requirements. 

There are key differences between the House and Senate proposals. The House bill would create one national exchange overseen by a new federal agency, the Health Choices Administration (HCA), with an opt-out provision for states under certain circumstances. The HCA would oversee the health plans and premiums charged for policies available through the exchange. Under the House bill, the exchange would be the exclusive marketplace for all individual (non-group) policies, other than grandfathered policies. Insurers would be required to bid to participate in the exchange, with the HCA able to negotiate terms before allowing a plan to participate in the exchange. By contrast, the Senate bill provides for each state to establish and administer its own exchange, subject to compliance with minimum federal standards, with federal intervention if a state does not provide an exchange. 

What’s at Stake

The exchanges will be at the crux of revamping the individual and small business markets. Whether there is a single national exchange or separate state exchanges will have significant implications for providers, payors and consumers. The House proposal could offer greater economies of scale and potential efficiencies for products offered across state lines, but would represent a significant shift from how insurance is currently regulated at the state level. The Senate proposal would retain the benefit of the local market knowledge of the states and would preclude an additional layer of federal regulation. 

Steps to Consider

Understand the impact of the exchanges on structure and oversight of the insurance market, evaluate current plans and prepare for refinements needed to transition to new exchanges.

Continuing Capitol Hill Debate on Medicare Advantage Proposals

The Facts

Medicare Advantage (MA) Program changes, among other Medicare-related provisions, have appeared in drafts of jobs legislation under development on Capitol Hill. Select proposals include the following:

  • The formula for calculating the CY 2011 national per capita MA growth rate, for purposes of updating CY 2011 benchmarks, would be amended to provide a 0 percent update to the physician fee schedule conversion factor.
  • The Centers for Medicare and Medicaid Services (CMS) would be authorized to extend to Direct Contract MA Organizations CMS’s waiver of service area requirements available to local coordinated care plans offering 800-Series MA Plans with Members residing outside of the service area
  • Special Needs Plans serving dual eligible individuals where the sponsoring MA Organization does not have a contract with the applicable state Medicaid agency, as required under § 1859(f)(3)(D) of the Social Security Act, would be permitted to operate through CY 2011, although the service areas of such plans would not be eligible for expansion.

Senate Majority Leader Harry Reid (D-NV), however, elected to move forward with draft legislation that excludes all health-related provisions. These proposed MA Program changes, among other health-related proposals, may be included in this bill, or another piece of legislation, later this month.

What’s at Stake

The proposal to modify the national per capita MA growth rate would neutralize the cut in the Medicare physician fee schedule that is statutorily required to be incorporated into MA Plan benchmarks.

Steps to Consider

MA Organizations should continue to monitor and analyze proposed changes to CY 2011 benchmarks as CY 2011 MA Plan bid submissions are developed in advance of the Monday, June 7, 2010 bid submission deadline.

Medicare Payment Authority Would Shift to New Board Under Senate Bill

The Facts

The Senate health reform bill would establish a 15-member Independent Payment Advisory Board (IPAB) with significant authority with respect to Medicare payment rates. Beginning in 2014, in any year in which the Medicare per capita growth rate exceeded a target growth rate, the IPAB would be required to recommend Medicare spending reductions.  The recommendations would become law unless Congress passed an alternative proposal that achieved the same level of budgetary savings. Subject to some limitations—hospitals, for example, would be exempt until 2020—the IPAB could recommend spending reductions affecting Medicare providers and suppliers, as well as Medicare Advantage and Prescription Drug Plans.  In years in which the IPAB would not be required to make recommendations, it would be required to submit an advisory report.  Every two years, the IPAB would make recommendations on slowing the growth of private health expenditures. 

The proposed IPAB has drawn significant criticism from advocacy groups, and a similar provision is not included in the House bill. However, the Senate’s IPAB proposal has strong support from President Obama and is expected to emerge in some form in any final comprehensive health reform package.

What’s at Stake

Medicare providers and suppliers could be subject to significant payment cuts if the proposed IPAB is enacted and overall Medicare spending continues to increase at its current rate.  A group of providers and advocacy groups, including the American Hospital Association, joined in a January 11, 2010, letter opposing the IPAB, noting that it would not be accountable to anyone but the president (who appoints its members). Shifting payment authority from Congress to an independent commission would be a significant change, and is viewed as one of the most meaningful measures in health reform legislation with respect to bending the cost curve in health spending.

Steps to Consider

  • Understand the broad and significant powers granted to the IPAB. For example, achieving coverage of new procedures and technologies could be impeded significantly if the role of Congress is minimized.
  • Keep informed about the Medicare per capita growth rate and the IPAB’s authority to make recommendations for payment reductions.
  • Should the IPAB be enacted, work to identify individuals for nomination. ‪

House and Senate Bills Call for Medical Loss Ratios for Insurers

The Facts

Both the Senate and House health reform bills would impose Medical Loss Ratio (MLR) requirements on insurers. MLR measures the percentage of an insurer’s premium revenue spent on health care services. In the House bill, the Secretary of HHS would have to establish the MLR at or above 85 percent. Any issuer with a lower MLR would have to provide “rebates to enrollees of the amount by which the issuer’s medical loss ratio is less than the level so specified.” The House bill also would impose MLR requirements on Managed Care Organizations (MCOs) and Medicare Advantage Plans (MA Plans). The Senate bill is less onerous for insurers because the MLR is currently set at 80 percent and state taxes would be excluded from the MLR determination. Note, however, that potential revisions to the Senate bill reportedly include a 90 percent MLR. In the House bill, the MLR provision would expire January 1, 2013 (excepting the MA Plan and MCO requirements), while the Senate’s would remain in effect until December 31, 2013. 

What’s at Stake

Health insurance issuers could potentially be forced to provide significant rebates. The cost of these rebates will greatly depend on which costs are excluded from the MLR determination. Also, the MLR provisions in the House bill applicable to MA Plans and MCOs have no sunset provisions, thus increasing their potential long-term impact.

Steps to Consider

  • Follow the legislation closely because it is a very fluid process, and assess its impact.
  • Understand the impact of the proposed MLR requirements and be prepared to adapt quickly to their requirements.
  • Closely analyze which details are left to the Secretary of HHS to define by regulation. The rulemaking process will provide an opportunity for advocacy, should MLR provisions be enacted.

Accountable Care Organizations: These Are Not PHOs Version 2.0

The Facts

Both the House health reform bill, H.R. 3962 (Affordable Health Care for America Act), and the Senate version (Patient Protection and Affordable Care Act), include provisions (House Section 1301 and Senate Section 3022) establishing Accountable Care Organizations (ACOs).  ACOs are provider-centric organizations focused on the costs and quality of care received by a designated population of patients over time.  ACOs can consist of vertically and horizontally positioned providers, including physician groups and hospitals.  In its most basic concept, although paid on a fee-for-service basis, ACOs that meet quality-of-care targets and reduce the aggregate costs of care rendered to their patient population relative to a spending benchmark are rewarded with a share of the savings they achieve for the Medicare program.

What’s at Stake

Regardless of whether health reform legislation is passed, providers will be increasingly challenged to adopt operating models through which they are responsible and accountable for the quality, cost and overall care of a defined population of patients.  Emphasis will be placed on clinical processes and outcomes, the patient care experience and utilization.

Steps to Consider

  • Evaluate why and assess those actions necessary to migrate from a financially driven model to a clinically integrated driven model if you previously operated a Physician Hospital Organization (PHO) that did not succeed. 
  • Evaluate investments in infrastructure and redesigned care processes for high quality and efficient service delivery.
  • Establish appropriate committees to explore and evaluate adoption of clinical best practices.
  • Bolster capabilities to capture and report on quality measures.
  • Coordinate with other providers to facilitate the sharing of effective strategies on quality improvement, care coordination and efficiency.
  • Assess hospital-physician relationships and your ability to promote and sustain quality based initiatives.

Medicare Advantage Plan Payments Remain a Target for Cuts

The Facts

The Senate’s Patient Protection and Affordable Care Act mirrors the Senate Finance Committee’s proposal to modify local Medicare Advantage (MA) Plan payments by moving to an enrollment-weighted average competitive bidding system.

Currently, local benchmarks reflect Adjusted Community Rate for each county, as updated annually over the past several years.  To calculate Plan payments, MA Organizations annually submit bids for their plan benefit packages that are compared to the benchmark for the county/counties in the Plan’s service area. 

Under the Senate bill, by CY 2015, benchmarks would equal enrollment-weighted averages of local MA Plan bids for the service area.  A ceiling would be established in each area so that local benchmarks could not exceed the levels that would have existed under current law.

What’s at Stake

The Senate proposal is markedly different from H.R. 3962, which would phase in benchmarks equal to the adjusted average per capita cost estimate payable under traditional Fee-For-Service Medicare.  Importantly, the House bill would initiate the transition beginning with the 2011 benefit year, as compared to the Senate proposal, which would initiate the transition with the 2012 benefit year.

Steps to Consider

The Senate bill is estimated to reduce MA Plan payments by $118 billion between 2010 and 2019, the traditional 10-year cost estimate period.  The Congressional Budget Office estimates that H.R. 3962 would reduce MA Plan payments by $170 billion in the same period.

In anticipation of these reforms, MA Organizations should begin to analyze their plan benefit packages, provider payment arrangements and member populations, and to discern the extent to which they can modify operations and/or develop and implement new initiatives.

House Energy and Commerce Bill Would Authorize Government Part D Price Negotiation

The Facts

Health reform legislation approved by the House Energy and Commerce Committee on July 31, 2009, includes an amendment to strike the so-called Part D “non-interference” clause, which prohibits the Secretary of the U.S. Department of Health and Human Services (the Secretary) from interfering with negotiations between pharmaceutical manufacturers, pharmacies and Part D Plan Sponsors.  Click here for an overview of the underlying legislation.

The amendment would authorize the Secretary to directly negotiate with pharmaceutical manufacturers the pricesincluding discounts, rebates and other price concessions that may be charged to Part D Plan Sponsors for covered Part D drugs. The negotiated prices would apply beginning in CY 2011, and would not prevent Part D Plan Sponsors from obtaining further reductions or discounts.

What’s at Stake

Inclusion of this amendment renews debate on the role of competition within the Medicare prescription drug benefit, and whether the federal government or private health plans are better suited to achieve greater reductions on prescription drug costs for Medicare beneficiaries (and taxpayers).  That this concept is part of health reform legislation also is noteworthy for potentially signaling a first step towards federal price setting for pharmaceuticals.

Steps to Consider

Part D Plan Sponsors, pharmacies and pharmaceutical manufacturers alike should closely watch reconciliation of the Energy and Commerce Committee’s bill with the bills adopted by the two other House committees of jurisdiction to see the fate of this clause. Whether the Senate Finance Committee includes such a provision in its draft legislation also will be significant. 

Health Insurance Exchanges: The Next Forum for Commercial Health Insurance?

The Facts

Draft health care reform bills circulating on Capitol Hill would seek to expand access to health insurance by creating “health insurance exchanges” or “gateways” (Exchanges) at the state or local level. Qualified individuals and small businesses could purchase health insurance offered by a private entity participating in an Exchange, or, if adopted, a public plan option.

  • Covering essential benefits:   The draft House “Tri-Committee” bill released on June 19, 2009, would require qualified health benefits plans to cover “essential” benefits through defined benefit packages that would vary by the insured’s cost-sharing obligation. Plan sponsors could elect to offer benefit plans that include additional benefits, such as vision care. The amended Senate bill proposed by Democrats on the HELP Committee would permit sponsors of qualified health plans to provide “essential” benefits through benefit plans with one of three cost-sharing variations. States could require these plans to cover additional benefits.
  • Sponsors of Qualifying Health Plans:  Both bills anticipate that private entities (including health insurers and HMOs) would participate in the Exchanges by sponsoring these qualified health plans. The House bill contemplates a bidding process with selected entities entering into a minimum one-year contract to offer plans in the Exchanges. The Senate bill would authorize the Exchanges’ administrators to permit participation of “certified” sponsors that are “determined” to offer plan(s) that are “in the interests of qualified individuals and qualified employers.”

What’s at Stake

For health care providers, whether their services would be part of the “essential” benefits defined for these qualifying health plans, and the terms and conditions (including payment) of participation will be key. For health insurers and other managed care organizations, a significant question is the extent to which the conditions of participation in the Exchanges—including mandatory acceptance of all enrollees and participation in the risk-pooling mechanism established for the Exchanges—affect the ability to offer the essential benefits (and any permissible additional benefits) at an affordable rate. 

The role of a public plan option, if any, will be critical for all potential participants.

Steps to Consider

Both bills offer general parameters for defining the “essential” benefits, setting provider network requirements, and adopting criteria for qualifying health plan sponsors. The details, however, likely will be addressed through the administrative rulemaking process, albeit in accordance with any requirements included in the final legislation.



House Reform Legislation Would Modify Medicare Advantage Benchmarks and Impose New Administrative Cost Standards for MAOs

The Facts
Among the proposals set out in the draft health reform legislation introduced by Democrats from three key committees of the U.S. House of Representatives are provisions to significantly modify the Medicare Advantage (MA) Program, including:

  • Benchmarks and Payment Rates: Beginning in 2011, the benchmark upon which MA Plan payment rates are calculated would be modified to reflect average per capita costs under traditional Medicare fee-for-service for the applicable service area. This would affect MA Plan payment rates as well as the potential scope of supplemental benefits MA Plans would offer.

    The legislation would provide up to 1% increases in the applicable benchmark for “high quality” MA Plans. Such “high quality” MA Plans would be identified based upon HEDIS data and consumer (CAHPS) surveys until the Secretary establishes a new metric to assess the quality of care available through MA Plans.

    The Secretary’s authority to implement coding intensity adjustments in the determination of MA Plan payment rates also would become permanent.
  • Administrative Costs: The Centers for Medicare and Medicaid Services (CMS) would be required to publish annually MA Plans’ medical loss ratios (MLRs), risk-adjusted per enrollee payment and average risk score.

    CMS also would be required to audit MA Organizations’ (MAOs) administrative costs to assess MAOs’ compliance with the applicable requirements of the Federal Acquisition Regulations that apply to other government contractors.

The House bill also would mandate that CMS create an office or program designed to improve the coordination of benefits for dual-eligible beneficiaries, modify components of the Medicare Part D Program, and enhance the Secretary’s and CMS’s authority sanction MAOs and Part D Plan Sponsors that engage in (or contract with an individual or entity that engages in) prohibited marketing activities, among other activities.

What’s at Stake
As part of the reform process, the Democratic majority within the U.S. House of Representatives appears determined to make quality of care offered to MA enrollees a focus through increased performance reporting and corresponding payment adjustments. Additional obligations – including public reporting of MLRs and compliance with the FAR administrative cost requirements – will increase MAOs’ costs to participate in the Program.

Steps to Consider
In addition to monitoring the potential downward adjustments to the MA benchmarks, MAOs should consider the potential implications associated with the proposed requirements, such as:

  • Competitive position in light of enhanced public reporting
  • Costs of complying with new reporting requirements
  • Potential risks of non-compliance with marketing and administrative cost provisions

Kennedy Health Care Bill: Potential Health Reform Implications

The Facts
This week Senator Edward Kennedy (D-MA), chairman of one of two Senate Committees with responsibility for advancing a health care reform proposal, released the first comprehensive draft of health care reform legislation, the Affordable Health Choices Act.  Note that final decisions on such critical issues as a public plan and an employer coverage mandate are described in the bill merely as “policy under discussion.”  Below are selected highlights of the draft: 

  • Creates state-based insurance exchanges called “American Health Benefit Gateways”
  • Requires insurers to report expenditures to the government, which could trigger mandatory rebates to plan members
  • Stipulates that insurance premiums may only vary based on family structure, community rating, the actuarial value of the benefit and age 
  • Prohibits pre-existing conditions exclusions
  • Requires guaranteed availability and renewability of coverage
  • Prohibits lifetime or annual limits on coverage
  • Mandates individual coverage, with certain exceptions
  • Significantly expands Medicaid

What’s at Stake
Senator Kennedy’s decision to table inclusion of a public plan and employer mandate reflects his effort to leave ground for forging a compromise with Republicans.  However, Senate Republicans continue to vociferously object to the public plan, and many other elements of the Kennedy proposal.  President Obama, sensing the rocky debut of the first health reform bill, summoned Senate leaders June 10, 2009, to the White House, where he reiterated his insistence that a bipartisan bill be achieved this year and made clear his flexibility on all aspects of the legislation.

Steps to Consider
Evaluate how reform proposals may require changes in the operations of your organization, and consider working with policy makers and key stakeholders to shape the ultimate outcome of health reform.

Principal Components of House Health Reform Legislation Unveiled

The Facts
House Democrats released the broad parameters of their comprehensive health reform bill June 8, 2009.  The three House committees with jurisdiction over health reform plan to work from this common framework to develop a systemic reform proposal.  Click here for a health reform timeline.  Below are highlights of the plan: 

  • Protects current coverage and preserves choice of doctors, hospitals and plans
  • Creates a new national health insurance plan
  • Creates a national health insurance exchange and allows for regional or state exchanges
  • Initiates delivery system reforms, such as accountable care organizations, to incentivize quality and restrain health spending growth
  • Imposes individual coverage requirement and employer “pay or play”
  • Prohibits insurers from excluding pre-existing conditions and forbids rating based on gender, health status or occupation, and limits premium variation based on age 
  • Reforms Medicare’s sustainable growth rate formula for physician payment
  • Eliminates perceived overpayments to Medicare Advantage Plans

What’s at Stake
Reporting out a House bill by the August recess is at stake. While the House Democrats have united the three key House committees in producing this common framework, considerable dissension within the Democratic party remains.  A core area of disagreement is whether to include a public plan.  Pressure to achieve reform this year is considerable, as the Democrats do not want to risk spilling into next year’s congressional cycle.

Steps to Consider
Providers should assess the impact of a public plan option and expanded coverage, among other proposals.  Insurers should examine the impact of a Medicare-like public plan option on provider payments and the ultimate competitiveness of private plans, review the concept of the insurance exchange and assess the business impact of the proposed new insurance market reforms.  Insurers that act as Medicare Advantage Plans should monitor proposals to reduce payments.  Both providers and insurers should assess the potential impact of accountable care organizations.  Finally, employers should carefully monitor “pay or play” proposals and prepare to adapt to potential requirements.

Senate Finance Proposes Health Reform Funding Options

The Facts
On May 18, 2009, the Senate Finance Committee released the last of its three anticipated health reform option papers.  The proposals under consideration would make significant changes in the obligations of tax-exempt hospitals to provide charitable patient care, as well as changes in Medicare provider payments, beneficiary cost-sharing and taxability of employer-sponsored health benefits.

Charity Care Obligations of Tax-Exempt Hospitals
Tax-exempt hospitals could be required to do a periodic community needs analysis, provide minimum amounts of free care to the poor, not refuse services to patients who are unable to pay and adhere to restrictions in patient collection practices.  Senator Charles Grassley (R-Iowa) has justified these proposed new requirements because making health insurance coverage available to everyone should, in theory, minimize the amount of hospital uncompensated care.  Under this proposal, in addition to revoking federal tax-exempt status, the Internal Revenue Service could impose significant excise taxes (intermediate sanctions) on exempt hospitals that fail to comply with these new requirements.

Click here for the comment letter from McDermott partner Douglas Mancino outlining reasons to reject the Finance Committee's proposals to require tax-exempt hospitals to regularly conduct a community needs analysis and to provide a minimum annual level of charitable patient care.  This letter includes a copy of the new schedule H for tax-exempt hospitals and Mr. Mancino's article, "The Charity Care Conundrum for Nonprofit Hospitals."

Payments to Providers and Drug Manufacturers
Medicare would propose “spending reductions in [regional] areas...above a certain threshold compared to the national average.”  Medicare would reduce graduate medical education or disproportionate share payments.  Physician payments could be tied to outcomes and productivity, and reduced by a panel of experts if determined to be “misvalued.”  There would also be adjustments made to beneficiary cost-sharing, including a single annual maximum or other combined approach.  Beneficiaries would also face higher Part D prescription drug premiums, perhaps based on income.  Prescription drug makers could be subject to higher Medicaid rebate requirements.  Home health agencies would also face significant reductions in their Medicare payments.

Taxability of Employer-Sponsored Health Benefits
Various proposals were advanced for eliminating deductions for, as well as taxing the value of, employee health benefits, for all or just higher-income taxpayers.  The taxable amount could be the full value of the benefits or just their value above a benchmark basic plan such as the Federal Employees Health Benefits Program.

What’s at Stake
Tax-exempt hospitals may be required to provide substantial additional amounts of free and heavily discounted care to patients who cannot afford to pay, or risk punitive excise taxes. Providers and pharmaceutical companies would face a wide variety of payment adjustments, which are likely to be adverse in many if not most cases.  Higher-income employees and perhaps all employees would face the elimination, in whole or in part, of the current tax exclusion for health benefits.

Steps to Consider

  • Tax-exempt hospitals should examine their current approaches to charitable patient care and consider the financial impact of being required to expand their current federally mandated emergency room services obligations to include non-emergency care.
  • Employers should carefully monitor taxable health benefits proposals and prepare to adapt to the elimination or reduction of the current tax exclusion

Senate Health Care Reform Policy Options: Medicare Advantage

The Facts
On April 29, 2009, the Senate Finance Committee released the first of three anticipated health reform option papers. The Committee’s white paper includes four proposals to “promote quality, efficiency and care management” in the Medicare Advantage (MA) Program: modifying the MA Plan payment system, increasing payments for chronic care management, linking payment to quality and simplifying the supplemental benefits offered to Members.

What’s at Stake
The Committee sets out two alternate reform proposals for the MA Plan payment system that would take effect beginning in 2012. One approach would reduce the existing benchmarks to which MA Plan bids are compared, and the other would change the methodology by which the benchmarks are determined to that used in the Medicare Part D Program. The Committee also proposes to pay bonuses for evidence-based care management programs for chronic conditions. A Medicare Advantage Organization (MAO) that does not currently target chronic illnesses with care management activities should consider implementing such programs now so that it only has to incorporate adjustments to receive the bonus payment. Finally, the Committee proposes to tie a portion of MA Plan payment rates to quality performance. An MAO would need to ensure that its processes for collecting and submitting data are refined to capture all relevant data that may affect quality measures, and thus payment. 

Steps to Consider
The changes are proposed to take effect in 2012, meaning MAOs would have to position themselves to respond to the changes in time for the June 2011 bid submission deadline. In anticipation of these or similar reforms, an MAO should begin to analyze its plan benefit packages, provider payment arrangements and member population, and to discern the extent to which the MAO can modify its operations and/or develop and implement new initiatives. Health care providers can identify those MA Plans that represent a material portion of the providers’ patient population and initiate a dialogue to explore potential new areas of collaboration that will help improve quality outcomes while managing costs.

Senate Health Care Reform Policy Options: Medicare Payment

The Facts
The proposals under consideration in the Senate Finance Committee’s first of three anticipated health reform option papers, released on April 29, 2009, would make significant Medicare payment changes. Value-based purchasing would result in Medicare paying hospitals, home health agencies and skilled nursing facilities based on their actual performance against quality measures, rather than being paid for providing services and reporting on quality measures and activities, as they are now. Accountable care organizations would be established as a vehicle for groups of providers to voluntarily meet quality thresholds and share in cost savings achieved for the Medicare program. Bonus payments for primary care physicians and general surgeons of up to 5 percent of fee schedule amounts would be provided to physicians who furnish at least 60 percent of their services in specified ambulatory settings or practice in rural scarcity areas.

What’s at Stake
Providers will face increasing demands to shift the paradigm of patient care from a model based on fee-for-service payments to one oriented to quality measurements and care coordination. Providers also will be competing on the basis of quality and may experience changes in reimbursement individually, but the total pool of funds will not generally increase for many of the proposed reforms.

Steps to Consider

  • Examine current approaches to patient care and consider internal and external steps necessary to manage the impending shift from traditional fee-for-service payments to payments based on quality measurements and care coordination.
  • Explore relationships with management companies or better performing partners who can improve overall quality.
  • Consider new relationships with physicians to invest doctors in quality outcomes.
  • Continually evaluate ongoing business decisions in light of the direction and quick pace health reform is taking.

Systemic Health Care Reform Will Occur Under Obama

Senator Kennedy’s Senior Health Policy Advisor John McDonough, one of the key architects of the health reform effort, spoke at McDermott’s Washington, D.C., office in mid-April 2009 on the outlook for health reform. Other speakers included principals from Speaker Pelosi’s health care advisory team, Families USA and America’s Health Insurance Plans. McDonough affirmed that systemic health reform will happen in this Congress. Unlike in the Clinton years, all stakeholders are aligned and coordinating towards this end. Both the House and Senate intend to pass bills by the August 2009 recess. If Republicans block reform in 2009, the Democrats will change tactics to accomplish reform through budget reconciliation, which is not subject to filibuster. Click here to read John McDonough’s core predictions and our insights on how those policies, if adopted, would affect the health care industry.