Health Care Law Reform : Health Care Lawyer & Attorney : McDermott Will & Emery Law Firm : Managed Care, Product Regulations

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.

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The Facts

Neither the House nor the Senate will pass health reform legislation before adjourning for the summer recess.  Despite a breakthrough deal yesterday with fiscally conservative Democrats that allowed the House Energy and Commerce Committee to resume markup of its health reform bill on July 30, 2009, health reform legislation will not be considered on the House floor until September, at the earliest, according to House leadership.  Meanwhile, Senate Majority Leader Harry Reid (D-NV) announced July 23, 2009, that health reform legislation also will not be considered on the Senate floor until after the summer recess.  The Senate delay is intended to give a bipartisan group of Senate Finance Committee members additional time to negotiate a bipartisan health reform proposal.  Finance Committee Chairman Max Baucus (D-MT) announced July 29, 2009, that the group of six Finance Committee senators working behind closed doors are nearing an agreement.  Chairman Baucus hopes for a near-term agreement from the bipartisan talks, which could allow for a public committee markup of the agreement the week of August 3, 2009, the final week the Senate is scheduled to be in session prior to recess.

What’s at Stake

Passage of systemic health reform, which is expected to make sweeping changes to the health sector, is at stake.  While the president had earlier pressed for passage by the House and Senate before the August congressional recess, the president's rhetoric has recently recalibrated and now both he and congressional leaders speak of passing health system reform by the end of the year.  However, these delays will make completion of health reform legislation this year a challenge.  An enormous amount of work remains before a bill can be ready for the president's signature, and there now will be a short amount of time in which to complete that work.

Steps to Consider

Watch for the emerging Finance Committee bipartisan agreement and evaluate how its concepts would affect your operation.  Contrast the impact of the bill approved by the Senate HELP Committee and House committees and the expected Finance bipartisan agreement.  Assess the impact of the bills working their way through the House.

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The Facts

Health care reform legislation introduced in the House, the America's Affordable Health Choices Act of 2009, provides key details on financing health system reform. Significant revenue-raising proposals include the following:

• A surcharge on high-income individuals of 1 percent on adjusted gross income between $350,000 and $500,000 (married filing a joint return), a 1.5 percent surcharge on incomes between $500,000 and $1 million, and a 5.4 percent surcharge on income in excess of $1 million, to raise $543.9 billion over 10 years
• Corporate and international tax proposals that have narrow application or were widely expected by the business community, or both, including a further delay in the application of worldwide interest allocation rules relevant to U.S.-based multinationals for foreign tax credit purposes, denial of treaty benefits for groups parented by non-treaty country entities, and the long-anticipated codification of the economic substance doctrine applicable to a wide range of taxpayers, to raise $37.2 billion over 10 years

What's at Stake

As the House and Senate seek to pay for health system reform, it is expected that one-third to one-half of the cost of reform will be paid for through increased revenue from the tax code. Certain companies and high-income individuals may see significant increases in their tax liability. The Senate Finance Committee is considering a range of revenue-raising options. If the Senate selects different revenue-raising provisions, then the House and Senate will have to reconcile their differences in Conference, which could make passage of a bill more difficult.

Steps to Consider

• Watch the Senate Finance Committee, which is working to craft its own revenue raising proposals for health reform. It is expected that the Senate will turn to revenue-raising provisions not included in the House bill.  
• Small businesses should pay close attention to the surcharge proposal because many small businesses report profits on individual tax returns. Some members of the House are clamoring for changes to the surtax prior to House floor action. 
• Thus far, tax writers have indicated that the more controversial corporate and international revenue-raising provisions in the president’s budget will not be considered as part of health care reform, but companies should monitor the situation. 

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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.

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Democrats in the U.S. House of Representatives issued on July 14, 2009, a revised health care reform bill: America’s Affordable Health Choices Act of 2009. 

A whopping 1,018 pages long, the draft legislation addresses many of the key topics relating to health care reform, including the following:

• Medicare and Medicaid reforms
• Creation of health insurance exchanges in local service area, all of which would include a public plan option
• Provisions to promote preventive and wellness services
• Measures to improve efforts to combat fraud, waste and abuse

The revised bill also includes new provisions, such as a proposed tax on self-insured health plans, to fund the proposed health care reform.

Click here for a description of the legislation, released in conjunction with the bill.

Click here for a section-by-section summary of the bill.

Click here for a document comparing this July 14, 2009, bill to the initial draft bill issued by House Democrats on June 17, 2009.  Click here for a summary of top-line changes between the June 17, 2009, and July 14, 2009, versions of the legislation.

Click here for additional information about the proposed legislation, including descriptive documents released in connection with the bill, that is available on the House Committee on Energy and Commerce website.

Click here for a timeline in which the proposed legislation would be implemented.

Click here for the Congressional Budget Office's preliminary analysis of the legislation's cost.

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The Facts

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

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

What’s at Stake

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

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

Steps to Consider

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

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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

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

• Benchmarks and Payment Rates: Beginning in 2011, the benchmark upon which MA Plan payment rates are calculated would be modified to reflect average per capita costs under traditional Medicare fee-for-service for the applicable service area. This would affect MA Plan payment rates as well as the potential scope of supplemental benefits MA Plans would offer.
  
  The legislation would provide up to 1% increases in the applicable benchmark for “high quality” MA Plans. Such “high quality” MA Plans would be identified based upon HEDIS data and consumer (CAHPS) surveys until the Secretary establishes a new metric to assess the quality of care available through MA Plans.
  
  The Secretary’s authority to implement coding intensity adjustments in the determination of MA Plan payment rates also would become permanent.
   
• Administrative Costs: The Centers for Medicare and Medicaid Services (CMS) would be required to publish annually MA Plans’ medical loss ratios (MLRs), risk-adjusted per enrollee payment and average risk score.
  
  CMS also would be required to audit MA Organizations’ (MAOs) administrative costs to assess MAOs’ compliance with the applicable requirements of the Federal Acquisition Regulations that apply to other government contractors.

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

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

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

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

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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.

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