The Most Challenging Compliance Issue You Never Heard Of: The "Access Report"

By Karen Sealander and Jennifer S. Geetter

In 2009, the Health Information Technology for Clinical and Economic Health (HITECH) Act created the Medicare and Medicaid electronic health record (EHR) incentive program, commonly known as the “Meaningful Use” program.  Included within HITECH is an often overlooked provision that seeks to dramatically expand the current HIPAA Privacy Rule framework for sharing information with individuals about disclosures of their protected health information (PHI).  Although more than four years have passed since enactment of HITECH, the regulations promulgating this expansion of “accounting of disclosures” requirements to newly include routine disclosures for treatment, payment and healthcare operations have not yet been finalized.  The delay underscores the difficulty in crafting regulations that are both technologically feasible and respond to demonstrated patient interest.  To aid in the process, the U.S. Department of Health and Human Services (HHS) just this week announced a virtual hearing and an opportunity for public input on the stalled “accounting of disclosures” proposed rulemaking.  Information about the hearing, including links to the agenda, the discussion questions and instructions about public participation are set forth under “Next Steps” below. 

Proposed Rule Creates New Patient Right to a Comprehensive List of Access to their Electronic Health Record

Prior to HITECH, accounting of disclosures requirements for covered entities and business associates were limited to accounting of certain non-routine disclosures of PHI.  The most common disclosures, those related to treatment, payment and healthcare operations, were specifically excluded from the requirement.  The 2009 amendments to HIPAA, however, reversed course and require that covered entities and business associates be prepared to provide an accounting of disclosures of PHI for up to three years for treatment, payment and healthcare operations, if the covered entity uses electronic health record technologies.  Thus, at the same time that HITECH seeks to incentivize the rapid adoption of EHR technologies, it also presents a significant, albeit under the radar, cost to doing so in that it significantly expands the record-keeping requirements on covered entities and their business associates. Importantly, however, the statute specifically mandates that any regulations implementing this expansion of accounting of disclosures must take into account "the interests of the individuals in learning the circumstances under which their protected health information is being disclosed and takes into account the administrative burden of accounting for such disclosures." In other words, the statute includes a mandatory balancing test as part of the rulemaking process.

The HHS Office for Civil Rights (OCR) issued a Notice of Proposed Rulemaking (NPRM or Proposed Rule) to implement this statutory change in May 2011.  The Proposed Rule makes targeted modifications to accounting of disclosures for non-routine disclosures and creates a new patient right to an “access report.”   Specifically, the Proposed Rule would give patients a new right to request a list of everyone who has accessed their electronic protected health information in a “designated record set” for treatment, payment and healthcare operations for up to three years preceding the request.  In essence, the access report is a comprehensive list of uses and disclosures of an individual’s electronic PHI maintained in a designated record set.  This “access report” must provide the following information about each access to the record:  date of access; time of access; name of natural person, if available, otherwise name of entity accessing the electronic DRS; a description of what information was accessed, if available; and a description of action by the user if available (e.g., create, modify, access or delete).  The access report does not need to specify what the purpose of the use or disclosure was because OCR determined that “the burden on covered entities and business associates in identifying the purpose of each access to electronic designated record set information significantly outweighs the benefit to individuals of learning of such information.”  (76 Fed. Reg. 31439) Not surprisingly, the Proposed Rule seeking to implement the statutory requirement to account for disclosures for treatment, payment and healthcare operations met with considerable concern and resistance. 

Provider, Payer and Vendor Response to the Proposed AOD Rule

Much of the concern about the approach put forth in the Proposed Rule revolves around anticipated costs to the covered entity community in light of existing technology.  For example, in comments filed in response to  the Proposed Rule, the American Academy of Family Physicians, the American Medical Association and 18 other physician associations describe the proposed access report requirements as “costly and overly burdensome to implement and difficult to achieve by physician practices and their business associates.”  The American Hospital Association (AHA) notes the “heavy administrative burdens involved in producing individualized, patient-friendly accounting of disclosures and the new required reports on electronic access.”  The AHA further finds that the proposed rule is “premised on a significant misunderstanding of the capabilities of technologies available to and used by covered entities to produce the relevant information that they must report” and “fundamentally misjudges the value of the particular information that must be reported under the proposed rule for individuals who seek to understand how their PHI is used and disclosed.”  America’s Health Insurance Plans calls the compliance cost to health plans “staggering,” and reports that 30% of plans who responded to a member survey expect costs to range between $10M and $50M while 7% of plans reported it would cost between $50 - $100M.  HIMSS, whose members represent the majority of installed EHRs, urged OCR to “rethink and consider withdrawal of the access report proposal entirely, which appears to us to be unworkable on many levels.” 

What’s at Stake

If the May 2011 Proposed Rule is finalized as proposed, then HIPAA covered entities and their business associates must develop the capacity to produce, upon request, a patient-understandable report aggregating information about access to a patient’s electronic PHI for treatment, payment and healthcare operations for up to a three-year period in all of the information systems that comprise a designated record set.

Next Steps

On Monday, September 30, 2013, the Privacy and Security Tiger Team, a workgroup of the Health Information Technology Policy Committee that advises the HHS Office of the National Coordinator (ONC) for Health Information Technology, will hold a virtual hearing on issues related to this rulemaking, including “realistic ways to provide patients with greater transparency about the uses and disclosures of their digital identifiable health information.”  Invited witnesses representing patient advocates, vendors, business associates, providers and payers will testify, and public comment is being accepted during the virtual hearing for 15 minutes from 4:45 pm – 5:00 pm (EDT).  The public may also respond in writing to posted questions.  Click here for the questions and information about how to post responses.

This presents an important opportunity for interested stakeholders to provide input to OCR and ONC with respect to the technological feasibility of the expanded accounting requirements, the extent and nature of expressed patient interest in different types of historical use and disclosure information, and anticipated costs, burdens and benefits relevant to the balancing test.  The four years that have passed since the legislation and the two years that have passed since the Proposed Rule may suggest the acute difficulty of navigating the interplay of protecting privacy, identifying material patient interests in understanding different types of uses and disclosures, assessing existing technological tools and predicting the next generation of IT platforms, and designing a report that informs but does not overwhelm, and may signal that no regulation immediately presents itself that successfully meets the patient benefit/provider burden balancing test.

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.

CMS Issues Final Rule on Incorrectly Classified SCHs

by Amy Hooper Kearbey and Eric Zimmerman

The Facts

On August 1, 2012, the Centers for Medicare & Medicaid Services (CMS) posted the Inpatient Prospective Payment System (IPPS) final rule for fiscal year 2013.  In the rule, CMS finalized a revision to its regulations to address situations where a hospital was incorrectly classified as a Sole Community Hospital (SCH).  Under the revised regulation, an SCH is required to report “any factor or information that could have affected its initial classification [as an SCH].”  If a hospital makes such a report, and CMS subsequently determines that the hospital should not have been classified as an SCH initially, CMS will revoke SCH status effective 30 days after CMS’s determination.  If the hospital fails to report, CMS may recoup overpayments consistent with existing reopening rules  (i.e. for cost reporting periods that are within the 3-year reopening period).

CMS’s proposed rulemaking drew a number of comments from stakeholders.  Although CMS addressed several concerns raised in the comments, CMS did not respond to questions regarding the level of due diligence that a hospital is expected to exercise to discover errors in its initial classification as an SCH status or the extent to which a hospital should be able to rely on CMS’s final determination regarding SCH status.  In particular, stakeholders requested that CMS incorporate an express “awareness” requirement into the regulatory language, such that a hospital has a duty to report only if it becomes aware of a factor or information that could have affected its initial classification as an SCH, but CMS declined to do so.  CMS instead instructed that a hospital must report if it “suspects that it should not have qualified as an SCH,” without addressing what standard would be used to determine whether a hospital should have had a suspicion about its SCH classification.  Stakeholders also requested that CMS expressly clarify that only the regulations and interpretations that were effective at the time of the initial classification are relevant.  CMS confirmed this in the preamble, but it did not incorporate this concept into the regulatory language.

What’s at Stake

The new regulation calls into question whether a hospital can rely on CMS’s determination that the hospital qualifies for SCH status.  The regulation also creates a meaningful incentive to report any suspicion regarding SCH status because the financial implications of not reporting are significant – the potential for retrospective revocation for all cost reports subject to reopening. 

While this issue is of particular concern to SCHs, all hospitals should take note of CMS’s view that a hospital may not always rely on a final determination rendered by the Agency.

Steps to Consider

SCHs that have reason to suspect that they may not have initially satisfied all of the qualification criteria required for SCH status should consider investigating that suspicion, and making a report to CMS to avoid severe recoupments for failing to report.  Because of the significant legal and reimbursement implications associated with these investigations and reports, it is advisable to conduct these activities under the oversight of legal counsel.

In addition to the new regulatory requirement regarding initial classifications, SCHs should continue to be mindful of existing regulations at 42 C.F.R. § 412.92 that require the hospital to monitor certain changes to the circumstances under which it qualified for SCH status, such as the opening of a new hospital in the area or a change to the hospital’s geographic classification, and to report such changes to CMS.

Congress, President Agree to Extend Expiring Medicare and Medicaid Payments

by Andrea M. Bergman, Teddy Eynon, Karen S. Sealander and Eric Zimmerman

On February 17, 2012, Congress approved the Middle Class Tax Relief and Job Creation Act of 2012, ending debate over the extension of payroll tax reductions, unemployment insurance benefits, and numerous Medicare and Medicaid payment provisions, most of which were set to expire at the end of February. This White Paper provides an overview of the most significant Medicare- and Medicaid-related provisions in the act.

To read the full article, click here

Congress, President Extend Endangered Medicare and Medicaid Programs

by Teddy Eynon, Karen S. Sealander and Eric Zimmerman

The Temporary Payroll Tax Cut Continuation Act of 2011 extends numerous expiring Medicare and Medicaid programs, thus sparing physicians, hospitals and other health care providers significant Medicare and Medicaid payment cuts.  This On the Subject provides an overview of the most significant Medicare- and Medicaid-related provisions in the Temporary Continuation Act.

To read the full article, please click here

CMS Issues Proposed Rule Implementing the "Federal Sunshine Law" Reporting Requirements

by Bernadette M. Broccolo, Emily J. Cook, Lesley N. DeRenzo, Susan S. Lee and Joan Polacheck

The U.S. Centers for Medicare & Medicaid Services (CMS) released a proposed rule implementing the "Sunshine" provisions of the Affordable Care Act (ACA) that requires annual public reporting by certain drug and device manufacturers of payments made by them to physicians and teaching hospitals and of physician ownership interests in such manufacturers.  The "Sunshine" provisions of the ACA also require group purchasing organizations to make annual public reports of physician ownership interests in such organizations.  CMS is accepting comments on its proposed rule through February 17, 2012.

To read the full article, please click here

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.

CMS Releases its 2012 ACO Application; Pioneer ACOs Advance

by J. Peter Rich and Lesley DeRenzo

Medicare MSSP ACOs

Pursuant to the Medicare Shared Savings Program (MSSP) final rule released on October 20, 2011, the Centers for Medicare and Medicaid Services (CMS) has released its 2012 Accountable Care Organization (ACO) application.  Organizations interested in participating as an ACO in the MSSP created under the Patient Protection & Affordable Care Act may now move forward with the application process. 

Organizations must submit a brief Notice of Intent (NOI) to CMS by 5:00 p.m. EST on January 6, 2012.  A link to the NOI is accessible here.

Once CMS receives and processes an applicant’s NOI, the applicant will receive an acknowledgement letter from CMS that contains the applicant’s ACO ID.  Additionally, CMS will provide the applicant with detailed information on how to obtain a CMS user ID (which is necessary to apply for the MSSP). 

After an applicant has obtained an ACO ID and CMS user ID, the applicant should submit the MSSP application to CMS by no later than 5:00 pm EST on January 20, 2011, for the April 1, 2012 contract start date.  Applicants wishing to participate starting July 1, 2012, should submit the MSSP application to CMS by no later than 5:00 pm EST on March 30, 2012.  

For more information about the MSSP application process click here

Separate ACO Development - Pioneer ACOs Advance

In a separate ACO development, CMS has recently pursued partnerships with ACOs through its Pioneer ACO model, led by the Center for Medicare & Medicaid Innovation (CMI) within CMS.  The Pioneer ACO program has been designed for health care providers that have relatively more experience with an integrated delivery system model, and thus, greater readiness to contract with CMI as an ACO.  Approximately 40-50 of the Pioneer ACO applicants were offered contracts, and approximately 25-30 Pioneer ACOs are expected to enter into contracts with CMI.  CMI’s collaborations with Pioneer ACOs are aimed at achieving better care for individuals, better health for populations, and reduced expenditures for Medicare, Medicaid, and CHIP beneficiaries.

For more information about CMI click here.

HHS Announces $1 Billion Grant Project: Health Care Innovation Challenge

by Emily J. Cook and Lesley DeRenzo

On November 14, 2011, the Center for Medicare and Medicaid Innovation (Innovation Center) acting under the United States Department of Health and Human Services announced a funding opportunity entitled the: “Health Care Innovation Challenge.” The Patient Protection & Affordable Care Act established the Innovation Center and provides the funding for meritorious grantees who have successfully demonstrated an ability to implement innovative approaches to deliver high-quality health care services at lower costs for those beneficiaries enrolled in Medicare, Medicaid, and CHIP. 

The purpose behind the Health Care Innovation Challenge is to award pioneering ideas from individuals and entities that will ultimately reduce health care costs, improve quality of health care, and change the way health care services are delivered. To accomplish this objective, the Innovation Center will fund successful grant applicants through cooperative agreements ranging from approximately $1 million to $30 million dollars over a three-year period.

The Innovation Center is looking for grant applications that at a minimum address: (1) how the proposed model will develop and/or deploy health care workers in new and innovative ways, (2) how soon the proposed model will become operational (e.g., it must be capable of coming to realization in 6 months), and (3) how the proposal will be sustainable over time.  

All potential grantees must submit any applications electronically at Letters of Intent are due on December 19, 2011. Final applications are due on January 27, 2012. Awards are expected to be announced by the Innovation Center in March 2012.

For more information on the Health Care Innovation Challenge initiative funding opportunity announcement (in addition to upcoming events sponsored by the Innovation Center) please click here

Prospective applicants may submit specific questions about the Health Care Innovation Challenge by sending an e-mail to:

Wage Index Report Issued by Institute of Medicine Affects Medicare Payments to Hospitals

The Facts
The Institute of Medicine (IOM) on June 1, 2011, released a long anticipated report analyzing geographic adjustment factors under the Medicare program, including the hospital wage index and physician geographic practice cost index. This report is the first of two that have been commissioned by the Centers for Medicare & Medicaid Services (CMS) to examine the hospital wage index under the Inpatient Prospective Payment System and the geographic practice cost indices (GPCIs) under the Physician Fee Schedule. The focus of this first report is evaluating alternative methodologies and data sources for improving the accuracy of the hospital wage index and the GPCIs.

The IOM embraced recommendations remarkably similar to those made by the Medicare Payment Advisory Commission in its 2007 study of the wage index, including using Bureau of Labor Statistics data instead of hospital cost report wage data to form the backbone of the wage index. However, IOM departs from MedPAC in a few key respects. First, IOM recommends retaining metropolitan statistical areas (MSAs) as the building block for reflecting labor markets, instead using counties as MedPAC recommended. Similar to MedPAC, IOM also embraces a smoothing technique to eliminate sharp differences in wage index values between areas, but IOM recommends using commuting patterns rather than mathematical formulas, which MedPAC recommended. Notably consistent among these various reports is the proposal to eliminate reclassification processes, which IOM and others reason would no longer be necessary with smoothing.

The IOM report is the latest in a series of wage index reports to be released of late, all of which were generated by health reform legislation. CMS in April 2011 released a report on wage index reform developed by its consultant, Acumen, which recommended using wage and commuting data to define hospital labor markets rather than relying on MSAs.

What's at Stake
Future changes to the wage index, such as those recommended by the IOM, could dramatically increase or decrease Medicare payments to hospitals. While the release of this report is important for informing the discussion of geographic adjustment factors in Medicare payment, it likely will not have any immediate impact. The IOM report and others before it highlight that legislation is necessary to advance many of the recommendations. The Affordable Care Act (ACA) requires CMS to issue a plan to reform the wage index by December 31, 2011. CMS is expected to rely heavily on work previously done by Acumen for this report. Timing for the final report is not yet certain, but is critical. Congress is not likely to act until it gets CMS's report, and even then action will be difficult. Budget neutral action will redistribute billions of dollars, which makes any change politically difficult. Insulating would-be losers from heavy losses resulting from reform could be very expensive, which also makes any change politically challenging.

Steps to Consider

  • Hospitals may re-examine the 2007 MedPAC report to evaluate how the MedPAC proposals and comparable IOM proposals may impact payment.
  • Hospitals also may examine recommendations from CMS's contractor, Acumen, to evaluate potential impact.
  • Finally, hospitals that anticipate significant reimbursement impacts -- positive or negative -- arising from wage index changes, may wish to begin discussing these issues with congressional representatives.

CMS Issues Final Rule to Streamline Hospital and CAH Credentialing of Telemedicine Providers

by Amanda Jester

The Facts
On May 2, 2011, CMS released a final rule (the Final Rule) revising the conditions of participation (CoPs) for both hospitals and critical access hospitals (CAHs), scheduled to be published in the Federal Register on May 5, 2011. The Final Rule is an attempt to streamline the credentialing and privileging process for practitioners who provide telemedicine services to hospital or CAH patients. Currently, the CoPs require all practitioners providing services to patients to go through the same credentialing and privileging process, even if those practitioners are only providing services remotely through telemedicine capabilities. The Final Rule allows hospitals and CAHs to rely on the credentialing and privileging process of the facility where the practitioner is located (the distant cite), provided that the hospital or CAH and the distant cite have an agreement in place and the distant cite meets CMS standards (even if it is not a Medicare-participating provider). The Final Rule will take effect 60 days from publication, July 4, 2011, assuming a May 5, 2011, publication date.

What’s at Stake
CMS anticipates that the removal of unnecessary barriers to the use of telemedicine may improve access to and quality of care by enabling patients to receive medically necessary interventions in a more timely manner and enhancing patient follow-up in the management of chronic disease conditions. These revisions may also provide some relief to small hospitals and CAHs in rural areas with a shortage of primary care and specialized providers, by providing easier access to these practitioners through telemedicine. 

Steps to Consider

  • If a hospital or CAH does not already access practitioners via telemedicine, consider whether there are “gaps” in services available to patients that could be alleviated through telemedicine.
  • Identify a distant cite that may be a source of practitioners.
  • Keep in mind that the distant cite must meet CMS standards with regard to its credentialing and privileging process.
  • Develop thoughtful arrangements with distant cites to facilitate telemedicine services.

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.

Virginia Federal Judge Rules on Constitutionality of U.S. Health Care Reform Law

On December 13, 2010, Judge Henry E. Hudson of the U.S. District Court for the Eastern District of Virginia declared portions of the Patient Protection and Affordable Care Act (PPACA) unconstitutional.  The lawsuit challenging PPACA’s “individual mandate,” which, starting in 2014, requires citizens to pay a penalty if they do not purchase health insurance, was brought by Virginia’s Attorney General, Ken Cuccinelli.

Cuccinelli argued the federal government does not have the constitutional authority to impose the individual mandate.  This marks the first decision by a judge striking down any portion of PPACA.  Final resolution on the “individual mandate” will not be immediate.  Two other federal courts recently rendered decisions upholding PPACA and observers unanimously agree the Supreme Court eventually will determine PPACA’s constitutionality.  Many commentators have suggested for months that, regardless of how the legal issues play out, the relatively modest penalties imposed by the individual mandate would prove insufficient to cause uninsured people to buy health insurance (particularly younger and healthier people) and that Congress might well delay the implementation of the mandate for political reasons.

The December 13 decision needs to be studied carefully, and in relationship to all of the components of the recently enacted U.S. health care reform law.  How and to what extent this ruling affects other aspects of the health reform bill, either directly through legal susceptibility or indirectly due to the practical interdependence of the parts, is yet to be seen.  What is critical, however, and should not be lost in the headlines, is that the result of the PPACA legislation is a transformation of how employers, consumers, insurance companies and providers work together to meet the demand for health care services that can be delivered at lower cost, with higher quality and with outcomes that can be measured that will then serve as a basis for payment.

Regardless of the constitutionality of the insurance mandate, hospitals, physicians and public and private insurers are being pushed and pulled by the market, as well as new government programs, to develop alternatives to fee-for-service payment models.  Patients, employers and public and private insurers will continue to demand that providers focus on outcomes, cost reduction and quality of care.  The underlying market reality will continue to demand that the quality curve bend up and the cost curve down.

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.

HRSA Releases Two 340B Advanced Notices of Proposed Rulemaking

On September 20, 2010, the Health Resources and Services Administration (HRSA) released two Advanced Notices of Proposed Rule Making (ANPRMs) related to provisions of the Accountable Care Act (ACA) affecting the 340B drug discount program.  The 340B program allows certain hospitals and federally funded clinics (known as “covered entities”) to obtain covered outpatient drugs at substantially discounted prices.  Section 7102 of the ACA requires that HRSA promulgate regulations regarding an administrative dispute resolution (ADR) process and a manufacturer civil monetary penalty (CMP) process.  The ANPRMs allow HRSA to seek public comment prior to issuing proposed regulations addressing each of these new processes.  By submitting comments in response to these ANPRMs, covered entities and manufacturers have an opportunity to provide feedback to HRSA on the development of the ADR and CMP processes prior to the issuance of the proposed rules.

In the ANPRM for the ADR process, HRSA specifically requests comments on the following 12 issues:

  1. Administrative procedures associated with ADR
  2. Existing models for ADR that could be adapted to the 340B program
  3. Threshold requirements demonstrating good faith attempts to settle disputes before involving HRSA
  4. Structure of ADR hearings
  5. Whether the decision-making official or body should be comprised of individuals from HRSA, the Office of Pharmacy Affairs, or other parts of the Department of Health and Human Services
  6. Appropriate appeals procedures
  7. Timeframes for bringing a claim
  8. Discovery procedures
  9. Applicability of current manufacturer audit guidelines to the ADR process
  10. Consolidation of multiple claims against a single covered entity or manufacturer
  11. Third-party claims
  12. Integration of an ADR process with other 340B oversight mechanisms

In the ANPRM for the manufacturer CMPs, HRSA specifically requests comments on the following nine issues:

  1. Existing models for CMPs that could be adapted to the 340B program
  2. When CMPs should be applied
  3. Administrative processes for administering CMPs that are best suited to the 340B program
  4. Structure of CMP hearings
  5. Establishment of an appeals process
  6. Definitions of key terms necessary for the administration of CMPs
  7. Computation of CMPs
  8. Mechanisms for payment of CMPs and pursuit of civil action for non-payment
  9. Integration of CMPs with other 340B oversight mechanisms

Comments under both ANPRMs are due to HRSA by November 19, 2010. 

A copy of the ADR ANPRM is available here.  Comments on the ADR ANPRM may be submitted to

A copy of the CMP ANPRM is available here.  Comments on the CMP ANPRM may be submitted to

The ANPRMs are the most recent issuances in a series of regulations and guidances that HRSA is expected to release to implement changes to the 340B program resulting from the ACA.  Previously, HRSA held a webinar to provide guidance to entities that became newly eligible for the 340B program under the ACA and released a FAQ regarding eligibility for retroactive rebates.  A recording of the webinar, held July 28, 2010, is available here, summaries of the eligibility requirements for newly eligible entities are available here and registration forms for newly eligible entities are available here.  FAQ regarding retroactive rebates is available here.  A future release is expected regarding the orphan drug exclusion, but HRSA has not provided information regarding when such guidance may be released.

Guidance on Claims and Appeals Rules

Recently issued rules clarify internal claims and appeals procedures and external review processes, and provide details on external review requirements under the Patient Protection and Affordable Care Act.

Click here to read the full article.

Elimination of Retiree Drug Subsidy Deduction

Employers that currently receive a federal subsidy for providing retiree prescription drug coverage will no longer be able to take a deduction for those retiree drug expenses with respect to that subsidy as of 2013 under the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 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. 

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.

HHS Proposes Definition of Meaningful Use of Certified Electronic Health Record Technology

The Facts 

On January 13, 2010, the U.S. Department of Health and Human Services (HHS) proposed requirements for hospitals, physicians and other eligible providers to earn incentives for the adoption and “meaningful use” of “certified electronic health record (EHR) technology.”  Incentives in the form of enhanced Medicare and Medicaid reimbursement are received by demonstrating meaningful use of certified EHR technology.  The incentives start in 2011, but become penalties by 2015 through reduced reimbursements for those who do not achieve meaningful use.  This initial set of standards is intended to begin to define “a common language to ensure accurate and secure health information exchange across different EHR systems.”  Certified EHR technology can be either a “complete EHR or a combination of EHR modules" to enable providers to adapt to innovations in a rapidly evolving industry while ensuring access to a wide array of technology options, from vendor-based products, to homegrown technology, to hosted services on a subscription basis, to open source products.  For more information, see McDermott Will & Emery’s White Paper HHS Establishes the Initial Pathway for Qualifying for HITECH Act Incentives Dollars for Meaningful Use of Certified Electronic Health Record Technology.”

What’s at Stake

Eligible hospitals and professionals may receive incentive payments for achieving and may avoid penalties for failing to achieve meaningful use of certified EHR technology.  Some hospitals and doctors have already expressed concern about the all or nothing structure of the proposed rule, which requires providers to meet 23 criteria at once, or fail to qualify at all.  Vendors of EHR systems or EHR modules must ensure their products have the features and functionality to be certified and to enable meaningful use although the certifying bodies have yet to be certified.

Steps to Consider

Providers, vendors of health information technology and other interested parties should consider submitting comments to HHS prior to the March 15, 2010, deadline.  

In selecting an EHR, ensure that the EHR product by itself or combined with other EHR modules will achieve, or be modified by the vendor to achieve, certification.  Assess interoperability of modules.  Consider contractual commitments covering interoperability, certification and meaningful use. 

Vendors should develop a road map or work-around to ensure that products will be certified and that they will enable meaningful use.  Vendors should be ready to address customer demand for assurances.   

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.

Health Care Fraud Provisions in the Affordable Health Care for America Act

The Facts

The health care fraud provisions in the Affordable Health Care for America Act (H.R. 3162), the House health reform bill released last week, are largely the same as those in earlier proposals (click here and here for more information), and similar to those included in the Senate Finance Committee Bill, signaling clear potential for these provisions to become part of any final health reform package. The latest House bill now includes a provision requiring the Secretary of HHS to establish a self-disclosure protocol to enable health care providers and suppliers to disclose actual or potential violations of the physician self-referral law (Stark Law). Additional provisions from the Senate Finance Committee bill that overlap with the latest House bill include the following:

  • “Physician Payment Sunshine” provisions require drug and device manufacturers to report certain payments to physicians and other health providers. 
  • Physicians are required to document referrals to programs at high risk of waste and abuse, such as durable medical equipment or home health services, as well as face-to-face encounters with patients prior to certifying eligibility for home health services or ordering durable medical equipment. The Secretary may apply this requirement to any other service upon a finding that it would reduce the risk of fraud waste and abuse. 
  • Medicare and Medicaid overpayments must be returned within 60 days of identification of overpayments. Failure to return overpayments constitutes a false claim for purposes of the False Claims Act.

What’s at Stake

The fraud and abuse provisions in both the House and Senate health reform bills are quietly moving through the health reform process. It is likely that any health reform package passed by Congress will include significant fraud and abuse provisions. In addition to increased scrutiny, these provisions will require additional commitment and resources for compliance efforts. 

Steps to Consider

Providers should closely monitor these proposals and consider how current compliance programs, policies and procedures will need to be updated to address requirements common to the health reform proposals.


The Baucus Bill & Requirements for Tax Exempt Hospitals

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

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

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

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

Steps to Consider

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

Legislative Proposals Would Expand Pharma Obligations to Offer Discount Drugs to Hospitals

The Facts

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

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

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

What’s At Stake

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

Steps to Consider

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

Fraud and Abuse Provisions in America's Healthy Future Act of 2009

The Facts

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

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

What’s at Stake

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

Steps to Consider

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

Senate Finance Committee Health Reform Bill Would Restrict Physician Ownership of Hospitals Less Than House Counterpart

The Facts

Among the many changes that would be wrought by the health system reform bill introduced today by Senator Baucus is a proposal having little to do with health system reform, but nonetheless drawing significant attention from hospitals and physicians alike. Under the Senate bill, a physician would be prohibited from referring Medicare beneficiaries to a hospital in which he or she has an ownership interest. Hospitals that have physician ownership and a Medicare provider agreement by November 1, 2009, would be grandfathered, subject to significant restrictions that would prohibit most qualifying hospitals from expanding operating room and bed capacity.

The Senate restriction differs from its House counterpart in at least two key respects. First, to qualify for grandfather protection, a hospital must have physician ownership and a Medicare provider agreement in place by November 1, 2009, rather than January 1, 2009, as is the case in the House bill. Second, there may be some additional latitude on the growth restrictions. While the proposal would severely limit a hospital’s ability to expand its bed inventory, the limit on bed capacity for the first time references “licensed” beds, rather than simply beds. In the absence of this clarification, prior iterations of this restriction have generally been understood to mean beds as defined by Medicare under 42 C.F.R. § 412.105(b), which is often different from and less than a hospital’s licensed bed count. 

What’s at Stake

Hundreds of physician-owned hospitals and planned physician-hospital ventures would be affected by these provisions. Existing physician-owned hospitals that have complained about restrictions on growth may see some opportunity in this revised language.

Steps to Consider

Physician-owned hospitals should examine the language carefully to gauge the impact of the proposed changes, and those that would struggle under growth restrictions should examine whether a threshold based on licensed beds provides any relief. Physician-owned hospitals might explore increasing licensed bed capacity before the legislation is enacted.

Fraud and Abuse Provisions in the Baucus Health Reform Framework

The Facts

Senate Finance Committee Chairman Max Baucus (D-MT) put forth his much-anticipated Framework for Comprehensive Health Reform on September 8, 2009. The Framework outlines a plan for consideration by the Finance Committee’s “Gang of Six” bipartisan negotiators and includes policies that reflect the work of the committee throughout the summer. In addition to other areas of health reform, the Framework includes policies specific to both “transparency and program integrity” and “fraud, waste and abuse”:

  • New enrollment process for providers and suppliers, including an application fee
  • Data matching and data sharing across federal health care programs
  • Increased civil monetary penalties
  • Increased authority to suspend payment during credible investigations of fraud
  • New procedures to disclose and repay overpayments
  • Limitations on physician-owned hospitals
  • Requirements for drug, device and biologic manufacturers to report any payments or transfers of value, with limited exceptions, made to a physician or teaching hospital
  • Requirements for drug manufacturers and authorized drug distributors to report the type and amount of drug samples requested and distributed to practitioners 

Additional details about these provisions will be contained in the Chairman’s Mark of the bill, which will be made available prior to committee markup, which is expected later this month. Importantly, similar provisions are contained in the House health reform bill, America’s Affordable Health Choices Act of 2009. The Senate Health, Education, Labor and Pensions Committee (HELP) bill also includes provisions related to fraud and abuse enforcement.

What’s at Stake

Each health reform proposal to date includes provisions designed to prevent or deter fraud and abuse. Furthermore, reducing the rising cost of health care is a goal shared by lawmakers on both sides of the aisle, and reduction in fraud, waste and abuse is generally viewed as an area of significant savings. The health sector should expect that increased fraud and abuse scrutiny and enforcement will be included in any health reform package passed by Congress.

Steps to Consider

Evaluate the impact of fraud and abuse proposals in pending legislation. Assess how current compliance programs, policies and procedures will need to be updated to address requirements common to health reform proposals.

Security Breach Notifications

The Facts

The Health Information Technology for Economic and Clinical Health Act (HITECH Act) includes significant investment in health information technology to facilitate the adoption of a U.S.-wide health information network and requires HIPAA covered entities, business associates, vendors of personal health records and related entities to notify individuals when their personal health information is subject to a breach of security.  The U.S. Department of Health and Human Services (HHS) and the Federal Trade Commission (FTC) recently issued rules relating to these security breach notification requirements.  Compliance with these regulations will require the expenditure of significant time and expense, and, therefore, health care and related industries should begin immediately familiarizing themselves with the rulemakings and updating their processes and procedures to comply accordingly. 

What’s at Stake

HIPAA covered entities, business associates, vendors of personal health records and related entities could be subject to penalties for not properly notifying patients or customers, as applicable, of security breaches involving the patients’ or customers’ individually identifiable health information.  Note that while the HHS rule is effective September 23, 2009, HHS will delay enforcement for six months.  This means that HHS will not impose sanctions for failure to provide the required notification for breaches discovered before February 22, 2010.  Similarly, while the FTC rule is effective September 24, 2009, the FTC will delay enforcement for six months.  This means that the FTC will not impose sanctions for failure to provide the required notification for breaches discovered before February 22, 2010.

Steps to Consider

  • If your organization is a HIPAA covered entity, business associate, vendor of personal health records or related entity, review the HHS and FTC regulations, which can be viewed here and here, respectively. 
  • Affected entities should immediately begin to develop a compliance plan, because the effective date of the HHS rule is September 23, 2009, and the effective date of the FTC rule is September 24, 2009.
  • Consider filing comments on the HHS rule on or before the October 23, 2009, deadline. 
  • For a summary of these regulations, review McDermott’s White Paper entitled “Regulatory Update: HITECH’s HHS and FTC Security Breach Notification Requirements.”

Continuing Developments in Defining "Meaningful Use"

The Facts

The Office of the National Coordinator for Health Information Technology’s HIT Policy Committee has taken another important step towards defining “meaningful use” under the American Recovery and Reinvestment Act of 2009 (ARRA). Hospitals and eligible providers must meet the requirements for “meaningful use” of certified electronic health records (EHRs) in order to qualify for Medicare incentive payments under ARRA. Recently, the HIT Policy Committee approved revised recommendations for an initial definition of “meaningful use.” These recommendations are outlined in a lengthy matrix, which sets forth measures for meeting specified objectives for each of the years 2011, 2013 and 2015:

  • Goal for 2011 objectives – Capacity to electronically capture in coded format and report health information, and use that information to track key clinical conditions
  • Goal for 2013 objectives – Ability to guide and support care processes and care coordination
  • Goal for 2015 objectives – Capability to achieve and improve performance and support care processes and key health system outcomes

The HIT Policy Committee also recommended that the incentives be paid according to an “adoption year” timeframe rather than a calendar year timeframe. Accordingly, the objectives and measures for the year 2011 would apply to an organization’s first adoption year, if an organization is not ready for incentive payments until after 2011. The U.S. Department of Health and Human Services (HHS) will use the recommendations to develop regulations to implement the incentive payments under ARRA. 

What’s at Stake

Hospitals and eligible providers that meet the requirements of “meaningful use” of certified EHRs will be eligible for Medicare incentive payments beginning in 2011. Medicare payments may be reduced to hospitals and providers that do not meet the requirements for “meaningful use” of certified EHRs by 2015.

Steps to Consider

Evaluate how the 2011 Objectives and Measures in the Meaningful Use Matrix may require changes in the operations of your organization, anticipating that some form of the objectives and measures may ultimately be included in the regulations promulgated by HHS. Monitor regulatory actions by HHS regarding the definition of “meaningful use” and Medicare incentive payments under ARRA.