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.

China Intensifies Scrutiny of Multinational Pharmaceutical Companies

The Chinese government’s recent crackdown on alleged bribery and corruption of local officials by multinational pharmaceutical companies could signal a broad trend toward elevated scrutiny of all foreign corporations operating in the country—and provides an even greater incentive for companies to identify and implement anti-corruption practices focused on China’s unique business and legal culture.
In early July 2013, the government of the People’s Republic of China (PRC) announced a milestone investigation into GlaxoSmithKline Plc. (GSK) that has allegedly uncovered bribery involving millions of U.S. dollars that were funneled through more than 700 travel agents and other third parties over the last six years. The exact trigger for the inquiry is currently unknown, but there has been wide speculation about a variety of motives for the timing and targets of the case including a desire to reduce healthcare costs. The PRC government will be targeting foreign pharmaceutical companies with official “requests,” unannounced visits and dawn raids. Indeed, at least one other company has acknowledged being visited recently by government investigators in connection with this investigation.
In the wake of the Chinese government’s launch of a new round of aggressive investigations, multinational companies should begin scrutinizing their operations more carefully to ensure that their policies are well understood, and look for signs of potential bribery being carried out by their employees. To do so, they should truly localize their global compliance policy and program to specifically address their local operations in China, including the development and implementation of the following:
  1. Thorough and complete Foreign Corrupt Practices Act (FCPA) risk-based due diligence for mergers with, and acquisitions of, Chinese local companies
  2. Thorough due diligence review of third-party business partners, including but not limited to agents, distributors, consultants and travel agents
  3. A robust compliance program covering all critical functions, including sales and marketing personnel as well as compliance, legal, finance and human resources staff
  4. A well-run ethics helpline with active follow-up to all complaints and queries
  5. Ongoing compliance training for local management as well as employees
  6. Periodic compliance audits and immediate remediation as necessary
To fully benefit from these compliance efforts, multinationals should consider engaging professionals with the following skills and strengths:
  1. Familiar not only with FCPA requirements but also PRC anti-corruption laws and regulations
  2. Possess a deep understanding of Chinese business culture, along with a command of the unique nuances of compliance challenges in China, and able to identify and formulate effective responses to new and innovative forms of bribery and corruption
  3. Specialized in dealing with Chinese government investigations appropriately and licensed in China
The insights of such professionals would be helpful in minimizing risk and potential consequences, including reputational damage and executives’ liability. Ultimately, global compliance measures superimposed upon China’s unique business environment are not enough. A truly effective compliance program for China needs to be one that identifies and addresses the issues arising out of local business and legal culture.

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.

Deputy Director Dafny: FTC Focuses on Diversion Ratios, Not Geographic Markets for Hospital Mergers

by Stephen Wu

During an American Bar Association (ABA) program on antitrust and health care issues on October 1, 2012, U.S. Federal Trade Commission (FTC) Deputy Director for Health Care and Antitrust, Leemore Dafny, said that the FTC will focus on how patients purportedly react to price increases, as measured by "diversion ratios," when deciding which hospital mergers to investigate further for potential anticompetitive effects. 

Dafny stated that the FTC will focus on diversion ratios rather than geographic markets because relying on geographic market overlaps in hospital mergers may do a poor job of identifying the true source of potential competition problems.  Instead, the FTC has and will continue to evaluate hospital mergers to look at whether patients would be willing and able to substitute one hospital for the other if one hospital decided to raise prices for services, using the diversion ratio or the proportion of patients who would switch between them in response to a change in prices.  Importantly, the diversion ratio does not rely on any one particular geographic market definition to give the FTC what it believes to be an accurate idea of how a hospital merger might affect competition. 

To the extent the FTC considers geography, its staff begins by examining the primary service area of the hospitals – the area from which the hospitals draw about 75 percent of their patients – when conducting a preliminary evaluation of a merger to determine whether overlaps exist.  According to Dafny, the more significant the overlaps, the higher the likelihood of a potential competition problem.

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

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.

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.

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

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.

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.

AMA Establishes New Principles for ACOs

The American Medical Association has established new principles to guide the development and operation of accountable care organizations, which emphasize physician leadership and patient participation.

To read the full article, click here.

Workshop Examines Effects of Waiver Authority on Development of ACOs

The FTC, CMS and OIG hosted a public workshop on October 5, 2010, featuring panel and listening discussions on regulatory issues surrounding how the development and operation of accountable care organizations would be affected by the use of waivers, safe harbors and other exceptions to various fraud and abuse laws.

Click here for more information.

ACO Workshop: Just-Released Information on How to Participate by Webcast in FTC, CMS, OIG Workshop on October 5, 2010

It has just been announced that interested parties who were unable to participate in person (registration closed almost immediately) may now participate via webcast in the October 5, 2010, public workshop hosted by the FTC, CMS and OIG to discuss various legal issues related to accountable care organizations (ACOs), including antitrust, physician self-referral, anti-kickback and civil monetary penalty laws.

Click here for more information.

Health Care Reform: An Implementation Checklist for Hospitals

In the months since the Patient Protection and Affordable Care Act (PPACA) was enacted, organizations have been inundated with law and consulting firm client advisories, articles and seminars—all focused on summarizing the new health care reform law.  But to what extent have those articles and seminars provided a clear plan of action and said clearly, "Do this"?

This checklist provides that action plan and will help hospital and health system executives make sense of the new health care reform law, and translate it into specific action steps for their institution.

The checklist provides hospital and health system executive leadership with concise implementation recommendations to address each of the key themes of the health care reform law including:

  • fraud and abuse enforcement
  • insurance reforms
  • reimbursement
  • employment matters
  • tax-exempt status
  • information technology
  • corporate governance
  • strategic alliances

The checklist is intended to serve as a “yardstick” by which hospital and health system executives can measure their progress in responding to health system reform changes.

Click here to receive a copy of this checklist.

Additional resources on each of the topics covered and lawyers who specialize in these areas can be found here.

CMS Posts Self-Referral Disclosure Protocol

The U.S. Centers for Medicare & Medicaid Services posted its Medicare self-referral disclosure protocol describing how to disclose actual or potential violations of the Stark law and the associated Medicare overpayment.

Click here to read the full article.

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.

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.

Early Retiree Reinsurance Program Draft Application Released

On May 6, 2010, McDermott Will & Emery reported on the Patient Protection and Affordable Care Act’s new Early Retiree Reinsurance Program (the Program) interim final regulations.  The Program went into effect on June 1, 2010.  A prerequisite for participation in the Program is for a plan sponsor to submit a timely application for certification to the Secretary, or the Secretary’s designee. 

On June 1, 2010, a draft application and set of instructions for the Program was posted to the website of the Office of Management and Budget.  A final application will be available at a later date in June, prior to the date on which the U.S. Department of Health and Human Services (HHS) will begin accepting applications, and will be posted on the HHS Office of Consumer Information and Insurance Oversight’s website.  McDermott will keep you informed when this final application is posted.

In the meantime, if you have any written comments on the interim final regulations, the Firm can forward your input to HHS on an anonymous basis.  The comment deadline is June 4, 2010. 

IRS Guidance on Health Coverage for Children Under Age 27


Health Reform Provisions

The Internal Revenue Service (IRS) issued Notice 2010-38, which provides guidance under the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010, (collectively, the Act) on the tax treatment of health coverage and medical reimbursements for children under age 27.  Taxpayers may rely on Notice 2010-38, pending the issuance of amended U.S. Treasury regulations.

Section 105(b) of the Internal Revenue Code generally excludes from an employee’s gross income employer-provided reimbursements made to an employee for the medical care of the employee, the employee’s spouse or the employee’s dependents.  Coverage under an employer-provided accident or health plan is excluded from an employee’s gross income under Code Section 106.  Effective March 30, 2010, the Act extended these exclusions to coverage under an employer-provided plan and to expenses incurred for the medical care of an employee’s child who has not attained age 27 as of the end of the taxable year.

Notice 2010-38 also clarifies the tax treatment of these dependent benefits under cafeteria plans, VEBAs and Section 401(h) accounts.

Your Next Moves

Cafeteria plans must be amended by December 31, 2010, in order to cover children under age 27 for the 2010 plan year.  Amendments for the 2011 and subsequent plan years should be made prospectively.  Employer sponsors of group health plans should analyze their current benefit plan design to determine whether they will extend health coverage to children under age 27 in the 2010 plan year or wait until 2011 to implement this change.

Click here to view the full article.


Early Retiree Reinsurance Program Interim Regulations


Health Reform Provisions

Employers providing health coverage to early retirees should be aware of the new retiree reinsurance program under health care reform that goes into effect June 1, 2010.  Recent guidance issued by the U.S. Department of Health and Human Services specifies the qualifications for eligibility, the steps plan sponsors must take in the application process and the requirements for reimbursement.  The program is scheduled to begin on June 1, 2010, and will end on January 1, 2014, or until the $5 billion in funding allocated to the program is exhausted.

Eligibility to participate in the program is not automatic.  A plan sponsor is eligible to participate in the program if the plan sponsor submits a timely application for certification to the secretary, or the secretary’s designee, containing the necessary information.  Applications will be processed in the order received. Incomplete applications will be returned, and any revised applications will be processed based on the date the revised submission is received, not based on the date of the original, returned submission.  Due to the limited duration and budget for this program, it is important for plan sponsors interested in the program to become certified as quickly as possible.

Your Next Moves

Employers providing health coverage to early retirees should analyze their current benefit plan design and cost structure to determine whether they will apply to the program. 

Click here to view the full article.


Launching a Hospital/Physician Consolidation Strategy

Health Reform Provisions

The reimbursement models in the health reform legislation—including accountable care organizations, bundled payments and payments for quality—create powerful incentives for hospital/physician consolidation.  Strategic options include hospital acquisitions of physician practices or other, usually contractual, forms of hospital/physician clinical and financial alignment. In addition, many non-governmental payors have implemented or are planning similar reimbursement initiatives, which will further reinforce the hospital/physician consolidation trend. 

Your Next Moves

Hospital boards and senior managers should have as their first priority the development, and effective and rapid implementation, of a hospital/physician consolidation strategy appropriate to the realities of their markets. Leaders considering forming or joining a consolidated provider system should carefully analyze several factors at the next board meeting or strategic planning session. For instance, these consolidated provider systems will need the infrastructure, such as information technology, necessary to meet the reimbursement goals. Another key agenda item is whether the organizations have the financial strength to bear greater financial risk for the cost of care provided to patients. 

A hospital’s fate, and, perhaps, existence, in the post-2015 world of fully implemented payment reform will depend upon actions taken, or not taken, in the next year.

Law Imposes Requirement to Report and Return Medicare and Medicaid Overpayments Within 60 Days

New requirements contained in the health care reform legislation increase the pressure on health care providers, suppliers, Medicare Advantage and Part D Plan sponsors, and others to return identified Medicare and Medicaid overpayments in a timely fashion, at risk of being alleged to have violated the False Claims Act. 

Click here to read the full article.

The Impact of Health Reform on Skilled Nursing Facilities

The recently enacted federal Patient Protection and Affordable Care Act (PPACA) includes significant fraud fighting and program integrity initiatives, in addition to the more widely publicized provisions dealing with health insurance coverage.  Some of these provisions apply to all providers and suppliers under federal health care programs, while others are aimed at specific health industry sectors.  By far the most extensive provider-specific terms are aimed at skilled nursing facilities and nursing facilities.  These provisions have created greater transparency with respect to complex ownership structures as well as enhanced data available to consumers and regulators on quality of care, staffing profiles and training issues. 

Click here to read the full article.

Patient Protection and Affordable Care Act Expands Hospital Eligibility for 340B Program

The 340B drug discount program allows certain hospitals and federal-grant-funded clinics to purchase covered outpatient drugs at prices substantially lower than available to other facilities.  The Patient Protection and Affordable Care Act expanded the types of hospitals eligible to participate in the program and instituted new programs for ensuring that both pharmaceutical manufacturers and covered entities comply with 340B program requirements.

Click here to read the full article.

ACOs and Developments in Coordinated Care Delivery, Shared Savings and Bundled Payments

The recently enacted Patient Protection and Affordable Care Act has generated significant interest in a new form of integrated delivery system known as an accountable care organization (ACO).  The Act specifically creates a separate ACO demonstration project within the Medicare Program, and provides for the implementation of several other coordinated care demonstration programs and the creation of a new entity within the Centers for Medicare and Medicaid Services that has the authority to test proposed methods of coordinated care delivery.  All health systems, community hospitals and physician groups should swiftly consider and carefully analyze forming or otherwise participating in an ACO or similar organization in order to respond effectively to the emerging changes in U.S. health care flowing from the new federal health care reform law and related initiatives sponsored by commercial payors.

Click here to read the full article.

Health Care Reform Will Reward Efficient Hospitals

The Facts

Recently enacted health reform legislation will establish reimbursement incentives to reward highly efficient hospitals.  Under the new law, $400 million has been made available, over fiscal years 2011 and 2012, for hospitals located in counties in the lowest quartile of age-, sex- and race-adjusted Medicare Part A and B spending.

In fiscal years 2011 and 2012, a qualifying hospital will receive, in addition to its regular Medicare reimbursement, a portion of the $400 million based on the ratio of the hospital’s fiscal year 2009 reimbursement relative to total reimbursement in 2009 for all qualifying hospitals.

According to a review of available Medicare databases, hospitals most likely to benefit will be those located in counties in southern, northwestern or midwestern states that are more sparsely populated and that have a lower number of chronically ill enrollees, including Kentucky, Montana, Wisconsin, Nebraska, Colorado and Arkansas.

What’s at Stake

This reimbursement incentive is one of many changes intended to incentivize quality and efficiency over quantity.  Although non-qualifying hospitals will not be penalized, this section of the legislation clearly incentivizes greater efficiency and shows a commitment by the U.S. Congress and the Centers for Medicare & Medicaid Services (CMS) to consider new methods of hospital reimbursement.

Steps to Consider

Although CMS will have to create new databases to implement this provision, hospitals can make some early rough predictions about whether they may be located in a qualifying county by consulting the Dartmouth Atlas of Health Care and data available on the CMS website.

Health Care Reform Legislation Affects Ambulatory Surgery Centers

The massive health care reform legislation enacted on March 23, 2010, (and subsequently amended on March 30, 2010) includes only a few changes directly affecting Medicare-certified ambulatory surgery centers (ASCs), but these changes will affect Medicare reimbursements in the near-term and may portend even greater reimbursement changes in the future.  ASCs should carefully review the legislation to determine how their businesses will be affected.

Click here to read full article.

Senate Bill Proposes Patient-Centered Outcomes Research Institute

The Facts

The Senate health care bill, the Patient Protection and Affordable Care Act, includes provisions (detailed in Sections 6301 and 6302) establishing a nonprofit corporation, the Patient-Centered Outcomes Research Institute (PCORI). The PCORI will conduct research and disseminate findings with respect to “the relative health outcomes, clinical effectiveness, and appropriateness” of medical treatments, services and items. The PCORI will not be permitted “to mandate coverage, reimbursement, or other policies for any public or private payer.” However, the government may use comparative clinical effectiveness research in coverage decisions “if such use [of the research] is through an iterative and transparent process which includes public comment and considers the effect on subpopulations” and under other constraints.

What’s at Stake

Regardless of whether this particular bill is passed, comparative effectiveness research is likely to become an ever greater part of how government determines whether and what it will choose to reimburse. Companies with a stake in governmental reimbursement will need to be aware of the direction of comparative effectiveness research and be prepared to justify services and products on that basis.

Steps to Consider

  • Evaluate whether the products and services you offer have a comparative advantage over other products or services promising the same outcome. 
  • Evaluate what the clinical basis is for your comparative advantage, including any effect on subpopulations.
  • Keep informed about the direction of the PCORI’s research agenda and initiatives to decide whether your area is under review.
  • Be prepared to establish comparative clinical effectiveness if the PCORI’s research does not agree with the results of your own research on your products or services.
  • Be prepared to participate in the public comment and review process if the government chooses to use comparative effectiveness in its coverage decisions, as allowed.

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.


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).

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.

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 Care Reform Bill Continues to Focus on Fraud and Abuse

The Facts

On July 14, 2009, the chairmen of three House Committees with jurisdiction over health policy introduced the America’s Affordable Health Choices Act of 2009. The fraud and abuse provisions from the first House bill remain with some changes to strengthen penalties or make technical corrections. The bill also includes several new provisions and provides for $100 million additional annual funding of the Health Care Fraud and Abuse Control Fund.

Changes or technical corrections to existing provisions include the following:

  • Authorization for the Secretary to disenroll certain providers of services or suppliers for failing to establish a compliance program with required core elements
  • Clarification that a provider's repayment of an overpayment does not limit the provider's potential exposure to other governmental actions such as interest, fines, civil or criminal sanctions it if is later determined that the overpayment was related to fraud by the provider or supplier or by provider or suppliers employees or agents
  • Expansion of the requirement for physician face-to-face encounters with patients prior to certifying eligibility for home health services to also mandate this requirement prior to ordering durable medical equipment or any other service if the Secretary determines it would reduce the risk of fraud waste and abuse 

New provisions include the following:

  • Language addressing the period and effect of the Office of Inspector General exclusion authority
  • A requirement for billing agents and clearinghouses to register with the Secretary
  • Amendments to conform the Civil Monetary Penalties law to the recent False Claims Act amendments

What’s at Stake?

The health care reform fraud and abuse provisions have a wide reach and touch on nearly every aspect of providing health care—from enrolling as a provider to payment for services. Strict enforcement and penalty provisions will raise the compliance bar to new heights.

Steps to Consider

Consider how current compliance programs, policies and procedures, including those for repaying overpayments, will need to be modified to manage proactively the government’s increased focus on fraud and abuse.

CMS Releases Proposed 2010 Medicare Physician Fee Schedule Update

On a parallel track with health reform initiatives, the Centers for Medicare and Medicaid Services (CMS) continues its annual process of proposing changes to the existing Medicare payment systems.  The proposed 2010 Medicare Physician Fee Schedule Update, published in the July 13, 2009, Federal Register (74 Fed. Reg. 33520), includes a number of important changes to physician reimbursement, including a significant reduction in physician fees (unlikely to survive the final rule intact) as well as the "usual" array of technical revisions to the Medicare Physician Fee Schedule.  Click here for a brief summary of key proposals.

House Democrats' Health Reform Bill Proposes Significant Fraud and Abuse Reform

The Facts
The first draft of the House Democrats’ health care reform legislation published June 19, 2009, portends the government’s continued focus on Medicare program integrity, fraud and abuse reform, and transparency in industry-physician relationships. The bill includes several provisions that propose to enhance existing program penalties for fraud and abuse. Further, the bill explicitly provides that existing authority relating to program integrity and the authority to prevent and prosecute fraud, waste and abuse will apply equally to the public health insurance option. Other provisions of the bill propose to strengthen significantly compliance requirements for Medicare program participation.

Proposals for increasing existing penalties include enhanced penalties for:

  • False statements on provider or supplier enrollment applications
  • Submission of false Medicare, Medicaid or CHIP claims
  • Delay of Inspector General investigations
  • Exclusion of individuals from program participation
  • Obstruction of program audits

Proposals aimed at enhancing program and provider protections include:

  • Requiring providers and suppliers to adopt compliance programs that contain certain “core elements” established by the Secretary
  • Requiring physicians to provide documentation on referrals to programs at high risk of waste and abuse, such as durable medical equipment or home health services
  • Requiring repayments of known Medicare and Medicaid overpayments within a specified time period and making the failure to repay a false claim
  • Increasing access to databases and information necessary to identify fraud, waste and abuse
  • Proposing a more robust version of the Physician Payments Sunshine Act (S.301)

What’s at Stake
The provisions in the proposed bill underscore the federal government’s objective to fund some of the cost of health care reform through increased program penalties, reducing fraud, waste and abuse and enhancing payment protections. Physicians, providers and suppliers may see increased enforcement activities bolstered by greater scrutiny of program activities.

Steps to Consider

  • Review and assess current compliance programs and procedures to ensure accuracy of claims data
  • Consider whether existing policies and procedures for responding to government investigations should be modified or updated in light of the potential for increased government enforcement activity
  • Evaluate the additional investment of time and resources to meet the proposed physician payment transparency requirements

House Democratic Health Reform Bill Provides Only Preview of Provider Payment Changes

The Facts
On June 19, 2009, House Democrats unveiled their first draft of health care reform legislation. Despite exceeding 850 pages, the draft bill is still a work-in-progress. Many of the anticipated Medicare program payment reductions and revisions are absent from this draft, but providers should not draw too much comfort from that. President Obama has called for more than $600 billion in savings from Medicare, and those savings will be required to pay for the massive overhaul. Providers should still expect significant savings provisions to be added later.

In the meantime, the bill still includes considerable change, including:

  • Annual Medicare payment updates for virtually every facility type, including all hospitals and post-acute care providers, would be reduced by a productivity adjustment factor. Given that hospital market baskets are expected to be between 2.0 and 2.5 percent in FY 2010, the actual update for providers, if this change were to be enacted, could be only slightly above zero.
  • Medicare payment for post-acute services would be revamped and coordinated across settings.
  • Medicare payments for imaging services would be reduced.
  • Hospitals would be penalized for excess readmissions.
  • Ambulatory Surgery Centers would for the first time submit cost reports and quality data.

What’s at Stake
The proposed bill foreshadows a new reimbursement paradigm that focuses on accountability for quality, cost savings, coordinated care, and increased scrutiny to preclude conflicts of interest and other skewed incentives. Health care service providers will face new systems, obligations and incentives that will dramatically alter how providers furnish services and interact with Medicare and its beneficiaries.

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 other partners who can improve overall quality and reduce cost.
  • Consider new relationships with physicians to invest doctors in quality outcomes.

Senate Health Care Reform Policy Options: Fraud and Abuse

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 impose new transparency obligations on physicians, hospitals, nursing homes and pharmaceutical manufacturers. Transparency proposals include amending the Stark Law in-office ancillary services exception to require physicians to disclose financial interests in certain imaging services; eliminating the Stark Law “whole hospital” and rural provider exceptions with limited grandfather provisions; requiring manufacturers to disclose financial relationships with physicians; and requiring nursing homes to disclose ownership information, implement employee compliance programs and report staffing data. The Committee also proposes to strengthen compliance requirements and enforcement activity by increasing funding to federal enforcement programs, strengthening the screening process for Medicare program provider applications, requiring providers to implement compliance programs as a condition of participation in Medicare and Medicaid, and amending the Civil Monetary Penalties (CMPs) Law to increase penalties and extend the use of CMPs for certain violations.

What’s at Stake
The federal government may increase enforcement activities bolstered by easier access to publicly available information on existing arrangements and relationships. Providers could face increased penalties or suspension of payment for compliance failures. 

Steps to Consider

  • Assess and audit current approaches to management of financial relationships, and closely evaluate the implications of publicly disclosing the details of these relationships.
  • Evaluate the additional investment of time and resources to meet the proposed transparency requirements.
  • Review and update compliance plans.

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.